Electricity rebates Australia: Facing wider Budget deficit, Labor dumps popular rebates

Australians will lose electricity subsidies at the end of the year, an Albanese Government decision that leaves consumers even more exposed to an inflation outbreak.

Treasurer Jim Chalmers said Cabinet decided on Monday morning against extending the $300-a-year rebate, which was introduced in 2023 to offset a spike in prices triggered by the start of the war in Ukraine and has cost almost $7 billion.

Paid in three-monthly instalments, the rebate was originally limited to welfare recipients and small businesses. Extended to all homes in the 2023 Budget, the government decided the policy had become too expensive as it faces four years of budget deficits around $40 billion.

“This was a difficult call that we made as a cabinet but its the right call,” Dr Chalmers told reporters in Canberra. “This marks a shift in the way we are delivering cost-of-living relief. These electricity bill rebates are important part of the budget but not a permanent feature of the budget.

Struggling families

The Coalition, which has promised to lower power prices by reducing solar and wind power subsidies, repeated its criticism that the Labor Party has failed to deliver on a promise that its policies would cut electricity costs.

“Families are already struggling with skyrocketing power prices under Labor’s policies — and now they’re taking away the little help Australians had,” said Paul Scarr, the Opposition immigration spokesman.

The policy had widespread support. Only 20 per cent of people did not want the rebate extended a fourth a time, according to a survey published last week by Canstar, a price-comparison website.

Electricity prices rose more than almost every other essential item over the past year, hitting poor people especially hard and leading some to avoid using heating during winter or air-conditioning during summer. The number of consumers behind on paying their electricity bills has steadily creeped up to 3.1 per cent despite the rebates, according to the Australian Energy Regulator.

The 37 per cent increase in electricity prices in the year ended October 31 also hit business, raising costs across the economy from department stores to aluminium factories.

The Government said Australians would be protected from the full effects of inflation through greater government spending on doctors to encourage more to provide bulk-billed services that don’t require patients to pay, a cut in the cost of medicine provided under the Pharmaceutical Benefits Scheme and a 1 percentage point reduction in income tax next financial year and the following year.

‘Crispy pork’

Policy experts welcomed the end of the rebates, which they said may have made overall inflation worse by giving consumers more money to spend on other things. NSW and Queensland introduced their own version of the scheme.

“As they currently stand they are about as bad as policy gets,” independent economist Chris Richardson said. “They are middle class welfare, crispy political pork.”

Administration of the policy embarrassed the Treasury Department, which paid $2.3 billion under the program without Dr Chalmers’ written approval, a potential breach of the Constitution.

The Treasury acknowledged in its annual report, triggering questions in Parliament about how the mistake happened. Treasury officials described it as a “technical” oversight. The National Audit Office said a constitutional breach was a serious matter.

Mid-year Budget review

The decision to end the rebate was made as part of preparations for the mid-year financial review, an annual budget update published next week.

Dr Chalmers said the document, known as MYEFO, would include other spending cuts or tax rises, although did not specify what they would be. “It’s not be a mini-budget but there will be savings and difficult decisions,” he said.

Deloitte Access Economics forecast on Sunday the budget deficit this financial year will be around $39 billion, or $3b less than the last Budget forecast in May due to unexpectedly higher taxation.

The deficit will rise to $45b over the course of the four-year Budget forecasts, the consulting firm said, mainly because of higher spending for the Defence Department, the National Disability Insurance Scheme, pensions, health care and interest payments.

The end of the electricity rebates will likely trigger an inflation surge at the start of 2026. The Reserve Bank of Australia forecasts the consumer price index will accelerate from 3.3 per cent at the end of the year to 3.7 per cent by June 30, largely because of the end of the rebate.

The central bank’s aim is to reduce inflation under 3 per cent, prompting some economists to predict that interest rates will have to rise next year.

At the conclusion of a two-day meeting on Monday and Tuesday the Reserve Bank is expected to leave official rates on hold at 3.6 per cent.