Taxpayers are set to get hundreds of dollars back in their pockets each year after an unexpected income tax cut "top up" was announced in the federal budget.
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It was one of few surprises in the Albanese government's fourth budget, which prioritised spending on cost-of-living relief in an appeal to struggling households.
From mid-2026, the Labor government will reduce the first income tax rate, bringing it to its lowest level in more than half a century.
The 16 per cent tax rate, which applies to the taxable income between $18,201 and $45,000, will be reduced to 15 per cent from July 1, 2026, and then further reduced to 14 per cent from July 1, 2027.
This means the average worker, earning $79,000, will get an extra tax cut of $286 in the 2026-27 financial year, and a tax cut of $536 each year from 2027-28 onwards.
Together with the stage three tax cuts, which began in mid-2024, the average worker will receive a combined tax cut of $2190 per year from 2027-28 onwards.
For a taxpayer earning $100,000, the combined tax cut from 2027-28 onwards would equal $2715 per year.
Handing down the budget on Tuesday night, Treasurer Jim Chalmers said the extra tax cut would "give a top up to every taxpayer".
"These additional tax cuts are modest but will make a difference," Dr Chalmers said in his budget speech.
The tax cuts will decrease receipts by $17.1 billion over five years from 2024-25.
The government says the cuts have been designed in a way that still allows for inflation to sustainably return to the Reserve Bank of Australia's target band of 2 to 3 per cent by the middle of 2025.
The Greens have said they will not stand in the way of the cuts, but the Coalition has said it will not support them.
Medicare levy changes
There will be modest changes to Medicare levy thresholds, to ensure low-income households, along with seniors and pensioners, can continue to be exempt from paying the Medicare levy or pay a reduced rate.
Dated back to July 1, 2024, the threshold for singles will be increased from $26,000 to $27,222 and the family threshold will rise from $43,846 to $45,907.
For single seniors and pensioners, the threshold will be increased from $41,089 to $43,020. The family income thresholds will increase from up from $4027 to $4216 for each dependent child or student.
These changes are in addition to the suite of Medicare-related measures announced in advance of the budget's release.
Among the investments is $7.9 billion to ensure nine out of 10 GP visits are bulk-billed by 2030 and $689 million to cap the cost of medicines on the Pharmaceutical Benefits Scheme at $25.
Prior to the budget's release the government also announced a $793 million package to support women's health. The funding will be used to add more contraceptive pills and menopause treatments to the PBS, provide better access to long-term contraceptives and establish endometriosis and pelvic pain clinics.
Energy bill relief
Helping with the cost of living was one of the five priorities the Treasurer set out in the 2025 federal budget.
"Cost of living is front of mind for most Australians, and front and centre in the budget," Dr Chalmers and Prime Minister Anthony Albanese said in a joint statement.
The other big-ticket cost-of-living measure to feature in the federal budget is the extension of energy bill relief, announced in the days ahead of Tuesday's release.
The government will provide all households and about 1 million small businesses with another $150 in energy rebates. That will mean a $75 discount off households' quarterly electricity bills until the end of 2025.
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The Department of Treasury estimates this will directly reduce headline inflation by about half of a percentage point in 2025.
The extension of the rebates will cost $1.8 billion over the forward estimates.
Greater access for home buyers
The government announced an expansion of its Help to Buy shared-equity scheme, that it says will help more people buy a home with a smaller deposit.
The changes will see the income cap increase from $90,000 to $100,000 for singles and $120,000 to $160,000 for joint applicants.
Over five years, the government will also spend $54 million to boost prefabricated and modular housing construction, in a bid to build more homes sooner.
The funding will support states and territories to scale-up existing projects and help to develop a voluntary certification and rating scheme for manufacturers.
