The 2025–26 Federal Budget lands amid a shifting economic landscape—marked by softening growth, persistent cost pressures, and a notable uptick in corporate distress. While the government’s fiscal strategy includes tax relief, power bill rebates and healthcare funding, deeper structural reform remains elusive.

This year’s Budget echoes several themes from 2024. Then, the government capitalised on a surprise surplus and favourable commodity-driven revenues. Fast forward twelve months: public finances remain under pressure from slowing revenues and growing outlays in healthcare, defence, and social services.

Key economic indicators show Australia entering a delicate phase:

• Real GDP growth is forecast to slow to 1.75% in 2025–26 (down from 2.1% in 2024–25).¹
• Unemployment is projected to rise to 4.5%, up from 3.9% in mid-2024^.2
• Private business investment is expected to contract by 2%.³ 
• ASIC Insolvency Statistics – Series 1-2, shows corporate insolvencies have surged to over 9,000 external administrations in the 12 months to February 2025—up 21% year-on-year.⁴

These dynamics raise a central question: is the Budget delivering a platform for medium-term business stability, or deferring hard decisions until after the next election?

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A Targeted Relief Package: What’s in the Budget?

‍Stage 3 Tax Cuts (Revised)

The amended tax cuts will benefit 14 million Australians.

For a worker earning $75,000, you will receive a new tax cut of $268 in 2026–27 and $536 in 2027–28, compared to 2024–25 tax settings.

While this may lift disposable income and marginally support consumer demand, the stimulus effect on mid-sized enterprise activity would remain limited.

Energy Support

• Both households and small businesses will receive a $150 rebate.
• $25,000 energy efficiency grants are available to eligible SMEs.

Despite their headline value, these measures are modest compared to the 10–20% year-on-year increases in commercial energy prices reported by the ACCC.⁵

Healthcare Investment

A $7.9 billion boost to Medicare and allied health aims to address staffing pressures and reduce wait times— which affect workforce participation and productivity in the care economy.

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Mid-Market Impacts: Populism vs Business Reality

Mid-sized businesses continue to face structural cost challenges.

According to Australian Industry Group's (Ai Group) Australian Industry Outlook for 2025, labour availability and rising input costs are the top two concerns for business operators in 2025. Talent retention remains a key friction point, disproportionately affecting regional businesses and those in skilled trades.

While the Budget includes targeted industrial relations measures—such as additional funding for the Fair Work Ombudsman, a small business compliance advisory service, and a future ban on non-compete clauses for lower-income workers—it stops short of delivering substantive reform despite industry calls for:

• Review of award flexibility for seasonal and part-time labour.
• Clarification on casual conversion rights under the Fair Work Act.
• Consistency in portable leave entitlements across states.

Similarly, while energy grants are welcome, broader policy instability around transmission infrastructure and firming capacity remains a live issue, particularly for manufacturing and transport sectors reliant on predictable base-load supply.

Globally, Australia ranks 47th for energy infrastructure and 49th for renewable energy, highlighting the need for bolder energy policy reform.⁶

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ATO Compliance: A Sharpened Approach

The Budget allocates $999 million over four years to expand the ATO’s compliance task force —a 16% increase over prior years.⁷  Focus areas include:

• Phoenix activity, particularly in construction and logistics.
• Cash economy behaviour in hospitality and retail.
• BAS and superannuation compliance across small businesses.

This will likely lead to increased audits, faster debt recovery actions, and broader deployment of Director Penalty Notices (DPNs)—a personal liability tool available to the ATO for unpaid PAYG and super liabilities.

For distressed businesses, this highlights the importance of early action. Cor Cordis is observing an increase in clients proactively restructuring debt, engaging with the ATO early, or seeking formal safe harbour protection.

Practical steps for businesses:

• Review ATO lodgements monthly and seek deferrals where needed.
• Timely engagement with the ATO or appropriate authority is essential to demonstrate cooperation, mitigate enforcement risks, and implement formal payment solutions before debts fall overdue.
• Monitor DPN exposure and seek professional advice proactively.

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Under the Hood: Slowing Growth, Rising Insolvencies

The Treasurer’s economic narrative remains cautiously optimistic. However, key indicators tell a more complex story:

• Higher interest rates and global uncertainty are expected to dampen sentiment, leading to a decline in private investment, particularly in construction and machinery-intensive sectors.⁸
• Inflation, while easing (forecast at 3.25% in 2025–26), continues to erode real wages and compress discretionary spending.
• ASIC Insolvency Statistics – Series 1-2, shows corporate failures are trending above pre-COVID levels, driven by insolvency spikes in agriculture, construction, hospitality, and discretionary retail.⁹

Further to point 3, 11,053 companies entered administration in FY24, reaching an 11-year high and marking a ~40% increase from the previous year. The number of companies entering external administration in FY23 rebounded to 7,942, aligning with the average annual figure from 2016–2019.

So far, in FY25, 10,073 companies have entered administration, up from 7,748 for the same period in FY24. The increase has been driven largely by Victoria, where 2,915 companies have gone into administration—932 more than in the same period last year.

Some industries—such as discretionary retail and construction—remain heavily exposed to changing consumer preferences and higher inventory holding costs.  Others, like aged care, face operating deficits due to below-CPI indexation of care subsidies.

Despite this, the Budget does not introduce targeted sector support or new economic stimulus. The government is preserving fiscal firepower for potential mid-year economic softening or political contingency.

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Restructuring Implications: Preparation is Key

While the Budget lacks substantial long-term structural reform, it reinforces existing signals that businesses need to strengthen their financial foundations. For turnaround professionals, we expect:

Heightened Demand for Cash Flow Accuracy

With government spending primarily targeted at households rather than direct industry stimulus, businesses reliant on variable public sector revenue or discretionary consumer spending face increasing volatility.

• Increased demand for cash flow accuracy, especially for businesses reliant on variable public sector or consumer revenue.
• 13-week cash flow forecasting is no longer optional; it's essential for survival and lender engagement.
• Sectors such as construction, aged care, NDIS, and hospitality must anticipate delayed receivables and irregular payment cycles.
• Scenario planning (e.g. cost base shocks, demand reduction, ATO enforcement) is becoming a core requirement from lenders and investors.

Stricter Lender Scrutiny and Less Patience

Banks and private lenders are becoming more conservative, particularly in assessing covenant headroom, working capital buffers, and the credibility of restructuring plans.

• Stricter lender scrutiny, especially around covenant compliance and informal restructuring.
• Despite heightened competition in the home loan market and talk of further rate cuts, banks remain cautiously optimistic however maintain a conservative lending stance
• Informal forbearance is waning, and 'time-bound restructuring windows replace extend-and-pretend' scenarios.
• ATO debts, lease arrears, and unreported covenant breaches are being treated as early warning signs of underlying instability.
• Directors will face increased personal liability scrutiny—especially where trading while insolvent is suspected, or tax arrears trigger DPNs.

Rise in Distressed M&A and Opportunistic Acquisitions

Valuations are resetting across a wide range of industries, creating fertile ground for well-capitalised buyers, especially those looking to consolidate, acquire market share, or vertically integrate.

• Opportunities in distressed M&A, as valuations reset, and undercapitalised firms seek capital or exit pathways.
• Distressed bolt-on acquisitions are gaining traction in food manufacturing, tech services, and logistics.
• Receiverships and structured sale processes arranged in advance of formal appointments are gaining traction, particularly where secured lenders seek certainty over recovery outside of informal workout.
• Foreign buyers, from the US and Singapore, are re-entering the market, seeking distressed Australian assets with scale or IP.

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Final word

The 2025 Budget offers targeted relief but avoids deeper structural commitments.

It reinforces a familiar pattern: sentiment over substance. For business leaders, the message is clear—do not wait for reform. Get ahead of risk.

At Cor Cordis, we support businesses in transition—through early diagnostics, formal appointments, and strategic realignment. For those prepared to act early, 2025 may present opportunities. For others, the runway is shortening.