Federal Budget measures for business

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Australia’s economic outlook

The growth outlook for the economy has been lowered since the last set of Treasury forecasts in December 2024. GDP growth is expected to be 1.5% p.a. in 2024-25, downgraded from 1.75%. Forecasts for household consumption (0.75%) and business investment (1.0%) growth have also both been lowered.

Investment growth is also expected to continue slowing. Forecasts expect a decline in non-mining business investment from 2.5% growth in 2024-25 to only 1.0% p.a. in the subsequent two years. Mining investment is also forecast to decline next year.

The outlook for the labour market has been raised. Expectations for unemployment, wages, participation and job creation have been upgraded relative to past forecasts. This anticipates that the labour market is unlikely to materially ease over the next twelve months.

There is some uncertainty regarding the future path of inflation. CPI has fallen to around 2.5%, in significant part due to the effect of household energy subsidies. However, with these subsidies now scheduled to terminate at the end of 2025, CPI is forecast to rise back to 3.0% over the coming year. Global economic turbulence also adds additional uncertainty into the inflation outlook.

Large upward revisions to government spending have also been incorporated into the forecasts. Public final demand – economic activity ultimately funded by taxpayers – will grow by 5.0% in 2024-25 and 3.0% the following year. Private sources of demand grow by only 1.0% and 2.5%. These rates of public demand growth are considerably higher than expected growth in the economy and the forecasts issued three months ago. When read in conjunction with lowered forecasts for growth and investment, this indicates that government spending will continue to be a major driver of growth in the coming year.

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Fiscal policy: Tax, spending and debt

Fiscal settings have deteriorated further, with the forecast ‘underlying’ budget deficit this financial year weakening to $27.6 billion from a forecast $26.9 billion. The forward estimates indicate these budget deficits will continue to rise, averaging $38 billion p.a. over the next four years.

The ‘underlying’ deficit also obscures spending increases in off-budget spending and funds. These will add a further $19 billion to the headline budget deficit in 2024-25, and another $21 billion per year for the next four years. This off-budget spending includes investments in the Clean Energy Finance Corporation, the National Reconstruction Fund, various housing funds and $20 billion of student loan debt relief.

As a consequence public debt is expected to surge, with gross debt crossing the $1 trillion mark in 2025-26. The net debt share of GDP will steadily rise from 19.9% today to 23.1% in 2028-29, resulting in interest payments on public debt doubling to $28.1 billion p.a. in just four years. Interest payments on debt have now become the fastest growing component of the federal budget (growing at 9.5% per year), well-outpacing growth in the NDIS, defence, health and social care items.

A significant contributor to increasing government spending is the increase in Commonwealth public service staffing levels. The federal public service headcount will grow by 6.5% this financial year, following an 8.9% growth the year prior. Commonwealth departmental expenses jumped by 17% ($16.8 billion) in 2024-25, driven by these staffing increases.

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Industry policy

The Government will provide $3.2 billion over 19 years from 2024–25 to invest in Australia’s metals industry.

Funding includes:

• $2.0 billion over 19 years from 2024–25 for Green Aluminium Production Credits to provide production based grants to support Australian aluminium smelters switching to renewable electricity before 2036. This would be provided to eligible Australian Aluminium production facilities over a period of 10 years
• $1.0 billion over seven years from 2024–25 for the Green Iron Investment Fund to fund green iron projects through capital grants to support producers to establish or transition into low emissions facilities in Australia, including an initial $500 million allocated to the Whyalla Steelworks. More Government investment into Whyalla and the Steel works is expected.

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Housing construction

Housing initiatives

The Government will provide $58.8 million over five years from 2024–25 to increase support for housing, including:

• $54.0 million over four years from 2024–25 to increase the supply and adoption of prefabricated and modular housing construction, including:
  • $49.3 million over two years from 2025–26 to support states and territories to scale up existing projects for prefabricated and modular housing construction
  • $4.7 million over four years from 2024–25 to develop a voluntary certification and rating scheme for prefabricated and modular housing manufacturers. Costs for the scheme will be recovered from industry from 2028–29 onwards.

• $4.9 million over four years from 2025–26 to continue the Regional Home Guarantee and Family Home Guarantee streams of the Home Guarantee Scheme

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Education, skills and training

The Government provided funding detail about its initial response to the Strategic Review of the Australian Apprenticeship Incentive System, announcing $722.8 million over four years from 2025–26 to deliver increased support for apprentices.

Funding includes:

• $626.9 million over four years from 2025–26 to reframe the New Energy Apprenticeships Program as the Key Apprenticeship Program and expand it to capture critical residential construction occupations
• $77.8 million over four years from 2025–26 to extend the current interim Australian Apprenticeship Incentive System program settings for a further six months from 1 July 2025 to 31 December 2025
• $11.0 million over four years from 2025–26 to increase the Disability Australian Apprentice Wage Support subsidy
• $7.0 million over four years from 2025–26 to increase the Living Away From Home Allowance.

There will be six months of consultation to support the development of a new ‘gateway model’ for the incentive system.

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Trade

Buy Australia

The Government will provide $20.0 million in 2025–26 to the Department of the Prime Minister and Cabinet for initiatives to encourage consumers to buy Australian‑made products.

Support to expand Indian Relationship.

The Government will provide $20.0 million over four years from 2025–26 to support increased economic engagement with India.

 Funding includes:

• $16.0 million to establish an Australia‑India Trade and Investment Accelerator Fund to support cooperative projects targeted at reducing technical and regulatory barriers to trade
• $4.0 million to extend the Maitri Grants Program to support exchange and collaboration between Australian and Indian cultural, education, research and business communities.

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Income support and cost-of-living measures

Temporary extension of energy bill relief
Energy bill subsidies have been extended for a further six months to the end of 2025, when they will terminate. This will cost an additional $1.8 billion.