Treasurer Jim Chalmers has delivered a pre-election budget that promises to lift the nation's living standards by driving higher productivity in the face of global economic uncertainty.
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New tax cuts for every Australian, a $2.6 billion boost to aged care workers' wages and laws to ban non-compete clauses that hamper workers' ability to take higher-paid roles or start businesses are among the key measures announced on Tuesday night.
"Our $17 billion in tax cuts are the biggest part of the responsible cost-of-living package in this budget," Dr Chalmers said in his speech to the Parliament.
"This will take the first tax rate down to its lowest level in more than half a century."
However, the Coalition has said it will not back the tax cuts.
Dr Chalmers said the Albanese government's plan was for Australian workers to "earn more and keep more of what they earn" and that the budget would make the nation's economy more "productive, dynamic and competitive".
Inflation and unemployment are forecast in the budget papers to be lower than expected, with disposable household income expected to increase, a crucial barometer by which the government will be judged as it heads into an election.
Dr Chalmers seized on Treasury forecasts that inflation would reach the Reserve Bank of Australia's target band of 2-3 per cent six months earlier than expected, to hit 2.5 per cent in the year to June 30, a quarter of a percentage point lower than forecast in December.
He said he was confident in the Treasury figures despite global economic uncertainty.
United States President Donald Trump's move to impose 25 per cent tariffs on exports including aluminium and steel created a risk of "escalating trade tensions" and volatility in global markets, the budget papers said, creating a risk to investment and consumer confidence.
Dr Chalmers said trade tensions were only part of the story, with the Middle East and Ukraine wars also posing risks, along with the expected slowing of the US and China's economies, meaning the global economy was forecast to grow at "its slowest since the 1990s".
"Australia is neither uniquely impacted nor immune from these pressures, but we are among the best placed to navigate them," the Treasurer said.
While the new tax cuts would only just offset bracket creep - which happens when wage inflation pushes workers into a higher tax bracket, reducing their take-home pay - Dr Chalmers told reporters the measure was a "modest but meaningful" effort to safeguard living standards while being mindful of fiscal restraints.
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Treasury modelling showed they were expected to boost labour market participation - particularly by women, part-time and lower-income earners - through an increase in working hours.
The tax cuts will flow through a reduction to the tax rate for annual income up to $45,000 (applied to every dollar earned over the $18,200 tax-free threshold) from the current 16 per cent to 15 per cent in 2026-27, then 14 per cent in 2027-28.
The first tax cut will hand back up to $268 to every taxpayer from next July, then up to $536 a year from July 1, 2027. It comes along with a 4.7 per cent increase to the Medicare levy threshold - backdated to July 1, 2024 - worth $648 million, on top of already-announced cost-of-living relief including the $150 energy bill rebate for every Australian, $8.5 billion expanded bulk billing and capping PBS medicine co-payments at $25.
Removing non-compete clauses was forecast to lift wages by up to $2500 for workers covered by them, Dr Chalmers said.
"People shouldn't need to hire a lawyer to take the next step in his career," he said.
The Treasurer said defence spending, forecast to hit 2.3 per cent of gross domestic product by the early 2030s, was "a huge priority for this government", fending off suggestions that it should be higher.
"The global economy and the world more broadly is a dangerous place right now, and it is casting a dark shadow over our deliberations."
Finance Minister Katy Gallagher said the budget showed the Albanese government had proven itself as a responsible manager of the economy, with the bottom line "better for every single year that we inherited".
Dr Chalmers said the budget deficit "has almost halved since we came to office".
