2025 Federal Budget Explained: Higher Tax Revenue, But Rising Debt

Australia’s latest Federal Budget paints a mixed picture—while higher-than-expected tax revenue has strengthened the economy, increased government spending means debt and deficit levels are also on the rise. For individuals, investors and business owners, understanding what’s changing and how to plan ahead is more important than ever.

This article breaks down the key takeaways of the 2025 Budget in clear terms and highlights practical considerations you should be aware of.

Stronger Tax Revenue: The Role of the Labour Market

Australia’s labour market continues to outperform expectations. Unemployment remains low, and jobseekers are still finding employment despite inflationary pressures.

This strong employment base has resulted in higher-than-expected tax collections, giving the Federal Government greater flexibility to fund key initiatives, including the upcoming personal income tax cuts announced in this Budget. This boost in revenue has also helped to offset some of the financial burden from ongoing cost-of-living support.

Tax Cuts on the Way: $17.1 Billion Over Five Years

A major focus of this Budget is the personal income tax cuts set to begin in the next financial year. These cuts are projected to reduce government revenue by $17.1 billion over five years.

While this provides welcome relief for working Australians—especially middle-income earners—it also contributes to growing budget deficits over the medium term.

If you are a PAYG employee, investor, or business owner, now is a good time to review your tax planning strategy to ensure you are positioned to benefit from the upcoming changes.

Budget Deficit and Debt Levels: Short-Term Improvement, Long-Term Pressure

The 2025-26 Budget deficit is forecast at $42.1 billion, which is slightly better than last year’s estimates.

However, deficits in the years leading up to 2028-29 are now projected to be larger than previously expected, mainly due to policy measures such as tax cuts and increased government spending on healthcare and cost-of-living relief.

Government net debt is expected to rise to $768.2 billion by 2028-29, reaching 23.1% of GDP. While still within acceptable limits, this figure is approaching the Coalition’s recommended ceiling of 23.9%.

Economic Fundamentals Improving, but Policy Spending Still High

Since the last Budget, several “parameter changes” have improved the fiscal outlook:

Stronger employment
Slowing inflation
Steady commodity prices, especially iron ore

These factors have reduced the projected deficit by $36.4 billion. However, new policy decisions—particularly spending on Medicare and tax cuts—have added back $34.9 billion in costs.

This suggests the government is using improved economic conditions to justify increased public spending.

Global Uncertainty: Trump’s Return and Trade Risks

The Budget also reflects increasing economic uncertainty on the global stage, particularly following Donald Trump’s re-election as U.S. President.

His administration is expected to reintroduce or expand tariffs, potentially:

Raising the cost of imports
Increasing short-term inflation
Slowing global trade and growth

For Australia, this could dampen export performance, particularly in resources and agriculture. Investors with international exposure should monitor these developments closely and adjust their asset allocation and currency strategies accordingly.

What Does This Mean for You?

With the Budget focused on cost-of-living support and middle-income tax relief, now is a crucial time to re-evaluate your financial and tax strategy. Consider the following:

Individuals: Are you taking full advantage of the upcoming tax cuts? Could salary packaging or trust structures offer further benefits?
Investors: How will global risks and domestic fiscal trends affect your portfolio? Do you need to diversify further?
Business Owners: With policy changes on the horizon, is your structure still tax-effective? Are you managing FBT and payroll efficiently?

How We Can Help

At Boa & Co., we specialise in working with Chinese-speaking clients and business owners to navigate the Australian financial and tax landscape. Whether you’re preparing for tax changes, planning investments, or optimising business performance, we are here to help.