Aussie workers are set to benefit from new tax offsets and tax bill deductions under a raft of new measures brought in by the government to tackle cost of living pressures.
An annual $250 tax offset and a $1000 instant tax bill deduction were unveiled on Tuesday in what treasurer Jim Chalmers labelled “the most important and ambitious budget in decades”.
The widely anticipated measures sit at the centre of a new package of tax changes that frame a housing affordability-focused budget, which sets out the Labor Party’s ambitious plans for funding and delivering its promise to build new homes.
Presenting his budget address, treasurer Jim Chalmers said simplifying the tax system would make it “fairer and stronger for workers, business, first-home buyers and future generations”.
“The world is throwing a lot at us and this budget is about helping Australia deal with those challenges,” he said.
While some measures won’t come into effect for several years, extra hip pocket savings could reshape how Australians use their money to manage rent, save for a deposit, and pay off their home over years to come.
Tax savings confirmed
The government has outlined five tax cuts it said will see an average worker pocket up a maximum of $2816 by 2028.
The confirmed $250 tax offset, called the Working Australians Tax Offset (WATO), will come into play for the 2027-28 financial year.
The 13-million strong workforce will benefit from the offset every year, which will be paid automatically into tax returns at cost to the government of $6.4 billion over the five years from 2025–26.
Treasurer Jim Chalmers arrives at Australian Parliament House ahead of handing down the 2026 budget in Canberra. Picture: Hilary Wardhaugh
Under the offset, an Australian worker earning an average wage of $81,245 will see their tax cut increase by $1978 in 2026-27 and $2496 in the financial year after once combined with earlier income tax cuts from 2024 and 2026.
The $1,000 instant tax deduction for work‑related expenses is the second of the government’s raft of cuts.
Under the deduction, eligible Aussies can claim up to $1,000 at tax time without having to show receipts.
Tax time next year is the first opportunity to receive the benefit, which the government estimates will provide every worker with an average tax saving of $205.
“It’s too hard for too many Australians to get into the housing market and get ahead,” Dr Chalmers said. “That’s why we are providing tax relief to workers.”
Reforms should “make the tax system simpler and more sustainable”, Dr Chalmers said, while helping “rebalance a system which is more generous to assets than it is to labour.”
“The government's tax cuts will put more money in people's pockets,” he continued. “Every Australian taxpayer will receive a tax cut of up to $268 from 1 July 2026, then up to $536 every year from 1 July 2027.”
Workers can expect the equivalent of $54 a week back once the three tax cuts, the WATO and the instant deduction are combined.
“Our tax reforms will help workers, create a fairer housing market, and drive more productive investment across our economy,” Dr Chalmers said.
“The new revenue raised will be returned to workers and businesses over the next four years so more Australians can earn more and keep more of what they earn.”
The costly tax package comes following warnings from the Reserve Bank to the government to be responsible with its provisions.
Deputy governor Andrew Hauser last month said the central bank needed “rock solid” support from governments as it tries to reign in high inflation, following concerns government spending has weighed too heavily on the economy.
Fuel savings locked in
After skyrocketing fuel prices following two-and-a-half months of conflict in the Middle East, the government says Aussies can also expect to spend less and pocket more when it comes to petrol.
A $10 billion investment for immediate fuel supplies and a permanent fuel reserve has been announced to bolster a ‘fuel resilience package’.
Budget papers show more than a billion extra litres of fuel have been secured for March to June, while $2.9 billion has gone to halve the fuel excise and reduce the heavy vehicle road user charge to zero for April, May and June.
“War in the Middle East has been pushing up prices, pushing down growth and punishing Australians,” Dr Chalmers said. “[They] have been paying a hefty price for this war, at the bowser and beyond.”
The direct hit from high fuel prices has been softened in the last six weeks thanks to the government’s fuel excise, as well as still volatile but overall lowered oil prices coinciding with the US-Iran ceasefire period.
The government has announced a range of measures, which will hlep to put money back into the pockets of Australians. Picture: Getty
Coming into the budget, Commonwealth Bank noted spending on petrol had dropped significantly in recent weeks and was back in line with early 2026 trends.
“The government has delivered an excise on petrol and diesel has fallen from 52.6 to 20.6 cents per litre,” Dr Chalmers said.
A further crackdown on rogue petrol companies charging consumers more than is needed will also be rolled out.
The budget confirms the consumer watchdog will have its maxium penalities threshold doubled, while enforcement and monitoring is also set to be ramped up to protect Aussies from paying unfairly high fuel costs.
While solar rebates have largely been wound down now, the government has also used the budget to confirm its plans to modernise energy systems.
Though no concrete initiatives have been announced, budget papers show a further roll out of solar and batteries into homes with the expectation of $7 billion in systems costs savings over the next 25 years.
Spending shifted
The unprecedented and unexpected context of the Iran War surrounding this budget has left little tolerance for Dr Chalmers to splash the cash this year.
The Reserve Bank is relying heavily on the government striking a fine balance between helping dull the pain of cost of living and preserving control over spiraling inflation.
The Consumer Price Index jumped to a near three-year high of 4.6% in April, though the underlying inflation figure – which strips out the biggest price jumps and drops each month – is yet to fully reflect the economic devastation the war-induced oil crisis has wreaked on the Australian economy.
In its fight against inflation, the Reserve Bank of Australia raised the cash rate for the third straight time in May. Picture: Hu Jingchen/Xinhua
Talk of stagflation, where slow economic growth and high inflation exist at once, has been rife in recent months, with RBA governor Michele Bullock flagging further necessary rate rises could be needed, even if they lead to recession.
Dr Chalmers tonight confirmed Treasury expects inflation to peak in the middle of the year, in line with the Reserve Bank’s expectation. Both are anticipating a high of 5%.
“There’s very substantial spending restraint,” Dr Chalmers said of the budget. “This is a strategy which helps shield people from the harshest consequences of a global oil crisis.
“We know there’s more work to do because the immediate costs and consequences of this war are already serious and could be severe.”
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