Cuts to the lowest rate of personal income tax in this year’s Australian budget are welcome but do little to address the long-term challenge of tax reform, says Susan Franks CA, CA ANZ’s Australian tax, superannuation and financial advice team leader.

Treasurer Jim Chalmers announced on Tuesday night, 25 March 2025, that the current 16% tax rate for income between A$18,201 and A$45,000 will drop to 15% from 1 July 2026, and then to 14% from 1 July 2027.

Franks says that in making the cuts, the Labor government was likely responding to some independent MPs who have called to index personal income tax rates. “There needs to be a real discussion about meaningful tax reform to get Australia back on track,” she says.

“Governments need to address bracket creep, improve equity in the system and encourage productivity in Australia.”

Missed opportunities

CA ANZ is concerned that there remains a huge list of announced but unenacted measures.

The government will defer the start of the changes to the foreign resident capital gains tax from 1 July 2025 until after the legislation is passed by parliament. Likewise, last year’s budget announcement extending the clean building managed investment funds has also had its start date extended from its proposed 1 July 2025 commencement.

Some announced but not enacted tax measures date back even further, such as the proposal to include unpaid present entitlements in Division 7A, which was announced in the 2018–2019 budget.

“Tax agents who have been wanting clarification about Division 7A are still left in the dark,” Franks says.

Regulation and compliance

This budget contains a focus on the regulation of tax agents. It provides A$27.4 million to modernise the registrations framework, strengthen the sanctions available to the Tax Practitioners Board (TPB) and provide the TPB with funds to target high-risk tax practitioners.

“We support the TPB having a wider range of sanctions to ensure that the tax profession is appropriately regulated. So, we strongly support the reinstruction of the criminal penalties for unregistered preparers and welcome the introduction of enforceable voluntary undertaking, as they provide more flexibility to the TPB,” Franks says.

She says CA ANZ is also pleased that the government is maintaining the registered professional association pathway for tax agents. CA ANZ advocated strongly against the removal of this pathway. “It’s a win for our members and CA ANZ. It recognises the high standards that chartered accountants are required to achieve and maintain,” Franks says.

Likewise, she welcomes the introduction of longer timeframes for tax practitioners to gain the relevant experience they need for registration.

The government is also maintaining its focus on tax compliance, allocating A$718 million to the ATO’s Tax Avoidance Taskforce, as well as additional funds to tackle the shadow economy and personal income tax compliance.

Fiscal outlook

CA ANZ chief economist Richard Holden says the budget’s underlying deficits over the total period of the forward estimates came in at A$179.5 billion. However, it’s important to focus on the headline figure, which includes ‘off budget’ spending and is considerably higher – A$283.4 billion over the forward estimates.

“In the long run, the only way to deal with a deficit is by increasing taxes or reducing spending,” Holden says. “This is the key figure which will drive major policy decisions for whoever is in government after the election. The magnitude of it underlines the fiscal challenge Australia faces.”

Treasury is forecasting economic growth of 1.5% in 2024–2025, 2.25% in 2025–2026 and 2.5% in 2026–2027, but Holden says these forecasts might prove to be too optimistic.

“This is arguably rather bullish in a world marked by global uncertainty,” he says. “With US President Donald Trump set to announce a new wave of tariffs on 2 April, on top of the existing disruptions to global supply chains that have already occurred, and the substantial uncertainty about European security arrangements.”