MYEFO 2024-25: Budget - Financial storm clouds on the horizon as forecast deficits from new social policies take their toll

Overview of economic and fiscal outlook

The MYEFO just released by the Treasurer shows that an end to the surpluses the Government has enjoyed over the last two year is fast approaching, with slowing revenues and the promise of new policies such as the Build to Rent tax incentives announced in the last Budget beginning to bite.

While strong employment and wages are expected to drive higher personal tax receipts this will be offset by lower company tax as businesses face difficult economic conditions in the short term. The Government has again focused on tax compliance with an additional $361M allocated to the Australian Taxation Office (ATO) to improve its tax administration and has also proposed strengthening the tax penalty regime. The Government has also clarified the position regarding ‘bail-in’ bonds to allow bail in bonds for Australian branches of foreign banks to continue to be treated as debt for tax purposes, enabling deductibility of interest payments and ensuring an alignment with the treatment currently applying to bail in bonds issued domestically by Australian banks.

The Government has sought to re-emphasise its focus on easing cost-of-living pressures, its Future Made in Australia policy announced in the last Budget and other social policies.

In this alert we outline:

• the national priorities, spending, and policies revealed by the MYEFO; and
• the key legislative reforms that have been announced.

Overview of national priorities

Easing cost-of-living pressures

The Government has again confirmed cost-of-living relief for households and businesses, universal early childhood education and care and investing in more secure and affordable rentals. Some of the key measures are outlined below:

• Tax cuts: The Government’s tax cuts for Australian taxpayers which operate from 1 July 2024 are expected to provide cost-of-living relief and boost labour supply.
• Energy bill relief: As announced in the 2024-25 Budget, energy bill relief will be extended to over ten million households and one million small businesses.
• Student loans: Student loan reforms will reduce Higher Education Loan Program (HELP) debts by 20% before indexation applies on 1 June 2025, removing $16 billion in student loan debt (subject to the passage of legislation), building upon the reduction in indexation for the 2023 and 2024 years.
• Childcare: A commitment of $5.0 billion over five years to build a universal early childhood education and care system, including wage increases for the workforce.
• Held to buy: The Government has legislated and is establishing the “Help to Buy” scheme to support 40,000 Australian to buy homes with lower deposits and smaller mortgages (via an equity contribution from the Government of up to 40% for new homes and 30% for existing homes).
• Build to rent: The new build-to-rent tax incentives, which are now legislated, are anticipated to support the Government’s commitment to build 1.2 million new, well-located homes over five years from 1 July 2024.
• Competition: The Government has committed:
  • $900 million over the period to 2035–36 for payments to states and territories to implement pro-competitive reforms following agreement to revitalise the National Competition Policy;
  • $56.6 million over three years from 2025–26 (and $21.2 million per year ongoing) to the Australian Competition and Consumer Commission (ACCC) to support the introduction of a mandatory and suspensory administrative merger system; and
  • $40.9 million to the ACCC to boost its capability to target unfair surcharging practices and misconduct in the supermarket and retail sector. The Government has also announced a preparedness to ban debit card surcharges, subject to further work by the RBA and proposed reforms to the Australian Consumer Law to ban a range of unfair trading practices (subscription related, hidden fees, dynamic pricing and barriers to customer support).
• Payday Super: An additional $404.1 million over four years from 2024–25 will be provided to implement Payday Super, the cornerstone of the Securing Australians’ Superannuation Package. Further details on this legislative reform are provided below.

A Future Made in Australia

A broad range of reforms underpinning the Future Made in Australia agenda have been progressed, including legislating the Future Made in Australia Act 2024 and the Guarantee of Origin scheme, and introducing legislation for production tax incentives for critical minerals processing and renewable hydrogen. We have provided our insights on the critical minerals sector here and the production tax incentives here. The MYEFO announces that the Government will build on its $22.7 billion investment in the Future Made in Australia agenda, by modernising energy infrastructure and advancing the transition to a net zero economy, introducing reforms to ensure a fairer and stronger education sector and delivering transport infrastructure. Some of the key measures are outlined below:    

• A Front Door for investors: The Government is establishing a “Front Door” for investors with major transformational proposals within the Treasury portfolio - aimed at attracting more global and domestic capital by making it simpler to invest in Australia and providing a single point of entry for investors.
• Transition to net zero: The recent Safeguard Mechanism reforms, Australian Carbon Credit Unit market, New Vehicle Efficiency Standard, and Capacity Investment Scheme, mean around half of Australia’s emissions are now covered by policies to drive emissions reductions. The Government is investing $1.2 billion to modernise and deliver new transmission infrastructure to support renewable generation, building on the $20 billion Rewiring the Nation program.
• Education: The Government is implementing recommendations of the Universities Accord to establish a new university funding and governance model for the tertiary education sector. The Government has also agreed a new 10-year Better and Fairer Schools Agreement with Western Australia, Tasmania, the Northern Territory, and the Australian Capital Territory.
• Transport Infrastructure: $926.9 million is allocated to the Infrastructure Investment Program to support transport infrastructure projects.
• Community infrastructure: $201.1 million over three years from 2024–25 to support sustainable urban and regional development in Australia.

Strengthening Medicare and the care economy

Following the 2024-25 Budget measures to support Australian healthcare, the MYEFO focusses on strengthening Medicare and securing essential services for people with disability and older Australians, with investments that deliver a more sustainable and productive health, care, and support economy. This includes the allocation of $246.9 million to enhance access to Medicare services through the Medicare Benefits Schedule.

Broadening opportunity and advancing equality

The MYEFO also focuses on supporting legal assistance for vulnerable Australians, advancing gender equality, promoting First Nations economic empowerment, broadening labour market opportunities, and looking after Australia’s veterans. Some of the key measures include:

• Investing $3.9 billion over five years from 2025-26 to support frontline legal assistance services for vulnerable Australians.
• Supporting ongoing initiatives to advance gender equality, promote First Nations economic empowerment, and broaden labour market opportunities.
• Funding to address gender-based violence, including $534.5 million to support frontline services and initiatives.

Safeguarding our people and environment 

The Government has focussed on ensuring Australians remain safe and secure at home, abroad and online, and involves investment in protecting Australian environment and supporting regional partners. Some of the key measures include:

• Funding environmental protection initiatives, including $300 million toward the Sustainable Communities Program to help Murray-Darling Basin communities, and investment in pest, disease and disaster preparedness.
• Increased investment in the Australian Defence Force (ADF) and overseas partnerships, including $600 million to extend and expand the Continuation Bonus for permanent members of the ADF.
• Investing $76.1 million to support the implementation of its online safety agenda and $39.9 million to support innovation and the use of AI.
• Expanding the use of Digital ID to facilitate secure online transactions and reduce the amount of personal information businesses need to hold.

Key legislative reforms

Taxation – allow tax deductions for interest on foreign bail-in bonds

The Australian Financial Markets Association and KWM have been working together to find a solution to a technical tax issue that, in the ATO’s view, would prevent the deductibility of bail-in bonds issued by the Australian branch of foreign banks.

The MYEFO announced the following:

The Government will clarify the law to ensure continuity of established Australian Taxation Office administrative treatment on foreign bail‑in bonds. This will allow bail‑in bonds for Australian branches of foreign banks to continue to be treated as debt for tax purposes, enabling deductibility of interest payments. This will align with the treatment currently applying to bail‑in bonds issued domestically by Australian banks. This measure will apply retrospectively. Bail‑in bonds are financial instruments that are subject to conditions imposed by a prudential regulator that allow the regulator to convert the instrument into equity in a period of financial distress.

For further background on this issue, see the attached KangaNews article - here.

Modernising Tax Administration Systems

The Government will provide $76.0 million over four years from 2024–25 to the ATO to modernise income tax reporting systems from 1 July 2026, to enable trust tax returns to be lodged electronically, and enable prefill of trust income for beneficiaries (in the same way as salary and wages or bank interest are prefilled). The law will also be amended to require trustees to report the Tax File Numbers of beneficiaries on the trust income tax return where they have an entitlement.

This amendment will commence on the first day of the next quarter after Royal Assent.

Penalties – addressing gaps in the current tax penalty regime

The Government will amend the tax law to strengthen Australia’s current tax penalty regime by:

• ensuring tax scheme penalties apply where taxpayers are in a loss position, from 1 July 2026;
• penalising large taxpayers that mischaracterise or undervalue interest or dividend payments, to which withholding tax would otherwise apply, starting from 1 July 2026; and
• extending the application of the Shortfall Interest Charge to repayments of overclaimed refundable offsets to disincentivise overclaiming, starting from the first 1 January, 1 April, 1 July or 1 October after Royal Assent of the Future Made in Australia (Production Tax Credit and Other Measures) Bill 2024.

Strengthening Tax Compliance – boosting the Shadow Economy Compliance Program

The Government will boost the Shadow Economy Compliance Program from 1 January 2025 to 30 June 2028. These additional resources will enable the ATO to intensify its focus on high‑risk shadow economy behaviour such as worker exploitation, under-reporting of taxable income, illicit tobacco, and illegal shadow economy activity that creates an unlevel playing field for law abiding businesses.

Combatting Illegal Phoenixing

The Government will provide $66.9 million to the ATO and $1.1 million to the Australian Securities and Investments Commission (ASIC) to extend and enhance the Phoenix Compliance Program for two years from 1 July 2025. This measure is estimated to increase receipts by $278.2 million and increase payments by $150.9 million over five years from 2023–24.

Corporations – fee for takeover transactions

The Government will apply new ASIC fees and increase existing fees on the lodgement of documents necessary to implement certain takeovers of Australian entities, including a public company or listed registered managed investment scheme.

The new fees and increased fees will apply to documents lodged from 1 January 2025 to 31 December 2027.