Australia scraps electricity rebates as budget deteriorates

[CANBERRA] Australia will not extend cost-of-living relief to households in the form of electricity rebates, Treasurer Jim Chalmers said, as the government looks to rein in spending in the face of large, structural budget deficits.

“This wasn’t an easy decision, but it’s the right decision,” Chalmers told reporters in Canberra on Monday (Dec 8), adding the measure has so far cost the budget almost A$7 billion (S$6.02 billion). “This was a difficult call that we made as a Cabinet, but it’s the right call.”

The announcement comes a day before Australia’s central bank is expected to leave interest rates at 3.6 per cent for a third straight meeting as consumer prices show renewed strength. The decision is likely to result in sticker shock in forthcoming CPI reports.

“These subsidies had an outsized impact on inflation, and inflation perceptions, but were tiny in terms of aggregate household spending,” said James McIntyre of Bloomberg Economics. He estimates the end of the rebates could deliver a one-off 0.6 percentage point boost to the headline consumer price index.

“The Reserve Bank’s forecast assumption was for rebates to end this year, so this announcement won’t come as a surprise to them,” he added.

The centre-left Labor government first announced the energy rebates in late-2022 as a temporary measure for virtually every household in Australia and then extended them through 2025.

The plan has helped put downward pressure on headline inflation. In October, for example, electricity prices paid by consumers were 21 per cent lower than they would have been without the rebates. 

Chalmers will announce a midyear budget update next week, he said on Monday and added that while there won’t be a mini-budget, “there will be savings and there will be difficult decisions.”

The treasurer warned that Australian inflation is “higher than we would like” and next week’s budget update would take that into consideration. 

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“We’ve got two sets of challenges here,” Chalmers said. “At the front end, we’ve got this challenge with inflation, which is more persistent than anyone would like. And in the medium term and the longer term, we’re trying to turn around two decades of underperformance on productivity.” BLOOMBERG