Federal Budget 2025-26: The impact by sector
With the flow-through benefits for industry of the cost-of-living measures announced looking hazy, Westpac Institutional Bank analysts put the lens on the likely beneficiaries from this year’s Budget.
The 2025-26 Budget continued the theme of recent Federal Budgets with cost-of-living measures as its centrepiece.
Handed down early ahead of the Federal election – since called for 3 May – the Budget provides modest tax cuts for all taxpayers; reduces the amount consumers will pay for medicines on the Pharmaceutical Benefits Scheme; and continues electricity bill relief.
The most significant spending initiative is the single biggest funding boost to Medicare spending since the scheme was created 40 years ago, with an ambition to have nine out of 10 general practitioner visits bulk billed by 2030.
The government is also working to ease labour shortages, investing AUD 265.4 million over four years to expand general practitioner training; and AUD 626.9 million over four years in support for residential construction occupation apprenticeships which will pay apprentices up to AUD 10,000 to complete their training.
Many of the Budget measures were continuations of programs already underway – more funding for higher wages for childcare workers; an incremental increase in transport infrastructure spending with a focus on roads; and additional funding for green energy projects.
In this report, Westpac Institutional Bank analysts consider the likely impact of the measures in Federal Budget 2025-26 sector by sector.
Childcare
- AUD 3.6 billion to increase wages in the childcare sector by 15 per cent over two years, with 10 per cent starting last December and 5 per cent starting in December this year.
- AUD 1 billion to establish the Building Early Education Fund to support the construction and expansion of 160 early childhood education and care places across Australia, especially in priority and under-served markets.
- AUD 426.6 million to be allocated over 5 years to ensure families are eligible for at least three days a week of subsidised early childhood education and care, known as the 3 Day Guarantee.
The 3 Day Guarantee should see around 100,000 families becoming eligible for additional subsidised early childhood education and care in its first financial year commencing in January 2026, says Westpac Institutional Bank analyst Faye Zhou.
The Building Fund includes a capital grant of $500 million to quality not-for-profit early childhood education and care providers and state and local governments as well as a $500 million provision for future Investment.
Higher wages are expected to benefit around 200,000 early childhood educators and teachers. “Government funded wage increase will somewhat offset the cost burden on childcare providers and also facilitate attraction and retention of quality childcare workers”, says Zhou.
Consumer spending
- AUD 1.8 billion to continue energy bill rebates for households and eligible small businesses, with AUD 75 paid in the third quarter of the current calendar year and another AUD 75 to be paid in the fourth quarter.
- Annual personal income tax cuts through the reduction in the 16 per cent rate for the lowest personal income threshold to 15 per cent in July next year and to 14 per cent a year after. The AUD 5 per week tax cut will rise to about AUD 10 per week in the second year and cost AUD 17.1 billion over five years.
- AUD 38.8 million for the Australian Competition and Consumer Commission to investigate misleading and deceptive pricing practices and unconscionable conduct among supermarkets and retailers.
Westpac Institutional Bank retail analyst Joel Yap notes that the energy bill relief comes after the national energy regulator approved residential electricity price rises of up to 9 per cent in March. As such, he expects most of the payment to be absorbed into household budgets, with little of it to make its way to discretionary retailers.
“The retail sector has navigated challenging trading conditions over the past three years, with higher operating costs and an increasing level of insolvencies,” says Yap.
“More influential than the tax cuts and energy rebates will be further interest rate cuts on top of the 25-basis point cut in February, which should support retail spending.
The additional funding for the ACCC will promote enhanced transparency in the grocery sector and ultimately benefit consumers”, Yap says.
Health and aged care
- AUD 7.9 billion over four years from 2025–26 to expand eligibility for bulk billing incentives to all Australians.
- AUD 265.4 million over four years from 2025–26 to expand general practitioner training and AUD 248.7 million over four years from 2025–26 for salary incentives for junior doctors to specialise in general practice.
- AUD 784.6 million over four years from 2025–26 to lower the Pharmaceutical Benefits Scheme (PBS) medicines co payment from AUD 31.60 to AUD 25.00 on 1 January 2026.
- AUD 1.8 billion over five years from 2024–25 for new and amended listings on the PBS, including treatments for breast, prostate and lung cancers and for hormone replacement therapy and contraceptives.
- AUD 1.8 billion in 2025–26 as a one‑off funding boost to fund public hospitals and related health services.
- $AUD 57.9 million over three years for an additional 50 Medicare Urgent Care Clinics across Australia.
- AUD 2.6 billion for pay rises to aged care nurses over five years to fund the increased requirements for aged care providers under the Aged Care Act.
Health was a major focus of this year’s budget, with the government committing to the single biggest boost to Medicare spending since the scheme was created 40 years ago, says Westpac Institutional Bank health sector analyst Luke Gleeson.
About 29 per cent of GPs are expected to retire in the next five years, potentially creating a shortage, which the government is trying to address through its GP training program, he adds.
“Bulk billing GPs are the real winners here,” Gleeson says, noting that the government says nine out of 10 GP visits are expected to be bulk billed by 2030, however, the industry is sceptical on the level of uptake and switching towards 100% bulk billing anticipated by the Government.
The additional funding for public hospitals is to reduce waiting times and waiting lists, but it is unclear how that will ultimately affect demand for services at private hospitals.
The 50 new Medicare Urgent Care Clinics will take the total number to 137 across Australia. The clinics aim to reduce pressure on hospital emergency departments by offering Australians access care for urgent care for conditions that are not life threatening.
The higher subsidy for medicines on the Pharmaceutical Benefits Scheme (PBS) will result in higher sales by pharmacies, Gleeson says. And the addition of new drugs to the PBS will require more drug manufactures to negotiate prices for their products with the Government rather than consumers if they are to be included on the PBS, but this could be offset by higher sales.
Infrastructure
- An additional AUD 17.1 billion over ten years from 2024–25 for road and rail infrastructure construction.
- Projects include:
- AUD 7.2 billion for safety upgrades on the Bruce Highway in Queensland
- AUD 2 billion to upgrade Sunshine Station and AUD 1 billion for the Road Blitz in Victoria
- AUD 2.8 billion for projects in New South Wales, including cash to preserve the corridor for the South West Sydney Rail Extension and upgrades to roads in Western Sydney.
Westpac Institutional Bank Director of Infrastructure and Utilities James Hoskins says that in the overall scheme of infrastructure spending, this year’s allocation is not especially significant.
“These are projects over the next 10 years so the overall benefits for the industry are probably relatively modest,” he says.
The spending is highly focused on roads, which Hoskins says is notable given the government’s focus on the low carbon economy and mass transit.
The major exception is the AUD 1 billion set aside to acquire land to preserve a rail corridor in southwest Sydney, but Hoskins notes there is no start date for the actual construction of the railway extension.
Financial institutions
- AUD 1.5 billion allocated to support small business loans through government-backed guarantees.
- Superannuation funds are encouraged to invest in infrastructure projects, with AUD 2 billion allocated to co-investment opportunities.
- AUD 1.2 billion for disaster recovery programs to help insurers manage claims from natural disasters.
The personal income tax cut and the cost-of-living measures, in particular the electricity bill rebates, will help alleviate cost pressures on households and small businesses and so will somewhat improve debt serviceability and borrowing capacity, says Westpac Institutional Bank finance sector analyst Fraz Mahommed.
But he doesn’t expect a material improvement until interest rates fall further. “Once we start seeing those interest rate cuts come through, we should see lending growth pick up and at the same time we should also see loan impairments and credit provisions start coming off as well,” he says.
The higher spending on health and aged care, defence and renewables announced in this year’s Budget will prompt banks, including Westpac, to diversify their loan books, Mahommed says.
Non-bank financial institutions, meanwhile, are under pressure due to a higher cost of borrowing and more competition in the lending space.
Property
- AUD 722.8 million over four years from 2025–26 to deliver increased support for apprentices, including up to AUD 10,000 on top of their wages over the duration of their apprenticeship, up from AUD 5,000.
- AUD 54 million over four years from 2024–25 to increase the supply and adoption of prefabricated and modular housing construction.
- Banning foreign persons (including temporary residents and foreign owned companies) from purchasing established homes for two years from 1 April 2025.
- AUD 800 million in additional investment in the Help to Buy program for first homebuyers through increasing property price caps and increasing income caps, bringing total equity investments to AUD 6.3 billion.
The additional support for apprentices and for the adoption of prefabricated homes are “a step in the right direction” to creating more supply, but the residential housing sector needs a lot more stimulus, says Westpac Institutional Bank property analyst Frank Allen.
Foreigners with a temporary visa will still be allowed to buy new dwellings potentially stimulating new construction, but Allen expects this will only have a marginal effect in increasing demand for new property construction given they are generally only here for a couple of years, so will only be able to buy newly completed stock.
“This budget isn’t really doing anything that significantly stimulates supply,” he observes.
Allen says the most significant news for the commercial sector was what didn’t happen. This time last year the student accommodation sector was concerned about the government’s plan to introduce caps on foreign student numbers. However, the caps were not passed by Parliament and appear to have disappeared from the government’s political agenda, supporting ongoing demand for commercial student accommodation.
Pubs and hospitality
- A pause indexation on draught beer excise and excise equivalent customs duty rates for a two year period from August 2025, as well as a small increase in the excise remission for brewers and distillers at an estimated cost of AUD 165 million over four years from 2025-26.
Westpac hospitality analyst Sophie Dalton says the pause on beer excise will provide relief for clubs and pubs. Hospitality operators could use the excise saving to improve their margins or hold their prices down, and so potentially increase sales.
Dalton expects that the tax cuts and the electricity bill rebates will also help support spending at pubs and clubs, noting this is dependent on overall consumer sentiment in the economy.
Electricity and renewables
- AUD 2 billion to recapitalise the Clean Energy Finance Corporation to invest in renewable energy, energy efficiency and low emissions technologies.
- AUD 36.9 million to enhance the use of existing grid infrastructure and AUD 10 million for the Accelerated Connections Fund to reduce grid bottlenecks.
- AUD 500 million for clean energy technology manufacturing capabilities.
The AUD 2 billion recapitalisation of the Clean Energy Finance Corporation – Australia’s government-supported green bank – presents the first increase in of its General Portfolio since it was established in 2012.
Each dollar put into the CEFC is amplified by AUD 3 of private sector money, so the capital injection should support AUD 8 billion of projects, says Pranoy Modi, Westpac electricity sector analyst.
He describes the additional money as “incremental”, noting that the CEFC has supported AUD 71 billion in projects via AUD 18 billion in commitments since its establishment.
The AUD 500 million for clean energy technology manufacturing will support components critical to the clean energy transition, including wind towers, battery and storage technologies, hydrogen electrolysers and cables.
Modi notes that the AUD 150 in electricity bill rebates will flow directly through to consumers, so will have no impact on energy retailers.
Resources
- AUD 1 billion over seven years for the Green Iron Investment Fund for capital grants to support steel producers to establish or transition into low emissions facilities in Australia.
- AUD 2 billion over 19 years for Green Aluminium Production Credits to provide grants to support Australian aluminium smelters switching to renewable electricity before 2036.
Graham Smith, resources sector analyst at Westpac Institutional Bank, says the most significant news for the resources sector from the Budget is what wasn’t included – specifically an extension to the Junior Minerals Exploration Incentive.
The incentive encourages investment in greenfield minerals exploration companies to undertake high risk exploration and has been running for 10 years, but without an extension in this year’s budget it will expire on 30 June.
Defence
- AUD 1 billion in spend brought forward to begin preparations at Western Australia’s Henderson naval base and HMAS Stirling for AUKUS.
While there were no new defence spending announcements in the Budget, on top of the AUD 330 billion investment in capabilities and AUD 50.3 billion in incremental spending over 10 years announced last year, AUD 1 billion is planned to be brought forward including to cover costs of development of the Henderson Defence Precinct and the establishment of the Submarine Rotational Force – West at HMAS Stirling, to provide infrastructure for the AUKUS program.
“In the near-term Submarine Rotational Force - West at HMAS Stirling will accommodate the rotation of the UK and US submarines coming to Australia prior to the delivery of Australia’s submarines by the US in the 2030s,” explains Westpac analyst Rian Madex.
The industry analysts quoted in this article are from Westpac Institutional Bank and are not independent research analysts.
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