Australia's center-left government has introduced a surprising tax cut and an extension of energy rebates in a budget released before the upcoming election. The aim is to alleviate concerns about the cost of living for voters and help Prime Minister Anthony Albanese secure a second term in office.

The government's budget, disclosed in Canberra on Tuesday, reveals a deficit of A$42.1 billion ($26.5 billion) for the 12 months ending in June 2026, slightly exceeding economists' predictions of A$40 billion. The fiscal 2025 deficit is forecasted at A$27.6 billion after consecutive surpluses in the first two years of the Labor administration. Treasurer Jim Chalmers is striving to regain support from voters who are dealing with rising consumer prices, high interest rates, and a housing shortage in the post-Covid era, with a potential election on the horizon.

Chalmers announced in his budget speech that every Australian taxpayer will receive a tax cut in the next two years, bringing the lowest tax rate to its lowest level in more than 50 years. The government plans to decrease the lowest income tax rate to 15% by mid-2026 from the current 16% and subsequently to 14% by mid-2027, benefiting all taxpayers, regardless of income level.

Furthermore, the government will raise the threshold at which a levy for public health care kicks in, providing additional tax relief to over a million Australians. The cost of this measure is estimated at more than A$17 billion. While the budget deficit was lower than anticipated, driven by increased tax revenues and robust commodity prices, some economists warn that Australia's long-term economic challenges still need to be addressed.