Chalmers ends energy rebates as budget bites

Treasurer Jim Chalmers has warned taxpayers of more tough decisions to help repair the budget and wean Australians off temporary financial sugar hits after the government revealed it will not extend its $300 power bill subsidy.

Ahead of a Reserve Bank board meeting on Tuesday that is expected to raise concerns about a recent lift in inflation, Chalmers said ending the subsidy, which would have cost another $2 billion to run for a further six months, marked a change in the government’s approach to dealing with cost-of-living pressures.

Introduced in 2023, two versions of energy subsidies have cost the budget $7 billion while keeping inflation artificially low. At the time of their introduction, electricity prices nationally had climbed by 15 per cent over the previous 12 months.

The latest subsidy, which reduced electricity bills by $75 a quarter and went to all households and many small businesses, was extended for six months in this year’s budget.

But Chalmers said it was now time to move away from direct cash support to help people deal with cost pressures.

“This marks a shift in the way that we are delivering cost-of-living relief,” he said.

“This wasn’t an easy decision, but it’s the right decision. This was a difficult call that we made as a cabinet, but it’s the right call.”

The mid-year update is expected to show a lift in spending, particularly in providing support to veterans and to cover costs associated with recent natural disasters.

It is also forecast to show a further lift in personal income tax revenue due to the strong jobs market.

In March, Chalmers forecast this year’s deficit would reach $42.2 billion. Most analysts expect the deficit to be lower before growing again in 2026-27.

Chalmers downplayed suggestions next week’s budget update would be a “mini-budget” but revealed more tough decisions were coming.

“I’ve already announced a difficult decision that we’ve taken today as a cabinet. There’ll be other difficult decisions in the mid-year budget update as well,” he said.

A substantial shift in fiscal policy and new productivity-enhancing policies, however, are likely to be in the May federal budget for 2026-27 which Chalmers described as the “main game”.

Shadow treasurer Ted O’Brien said ending the power bill subsidy exposed the government’s handling of the budget. “Labor can’t continue to provide energy bill relief because they have run out of money,” he said.

The Productivity Commission is due within days to deliver to Chalmers its five separate reports into ways to boost economic growth. The most contentious suggestion from the commission, a cash-flow tax for all businesses, has little support within the government or the corporate sector.

There is growing pressure for Chalmers to reduce taxes on businesses in a bid to encourage more investment – pivotal to lifting productivity. Chalmers met representatives from the Business Council of Australia, which attended the August economic roundtable, on Monday.

Deloitte Access Economics used its budget update this week to argue the government should reduce the company tax rate to 20 per cent and offset that with a new super-profits tax – which would be likely to hit the resource and banking sectors – in a bid to repair the budget and increase the speed at which the economy could grow without adding to inflation.

Deloitte Access Economics lead partner Pradeep Philip said the government had made a responsible decision by ending the energy subsidies and should now make more tough decisions.

“The better way to deal with cost of living more generally is to drive supply-side reforms harder and also drive more structural tax reforms which include a tax-mix switch to take the pressure off income taxpayers,” he said.

Another area of interest is the 50 per cent concession on the capital gains tax for assets held for more than 12 months. A Greens-initiated Senate inquiry, due to report by mid-March, is examining whether the concession is adding pressure to the property market.

Deloitte Access estimates reducing the concession to 33 per cent would raise an additional $4 billion a year by the mid-2030s while reducing upward pressure on property prices.

One area the government believes it can drive cost-of-living relief is credit cards and digital wallets.

The House of Representatives’ economics committee will examine both areas in a short inquiry due to release a report by April.

Committee chair Ed Husic said that with the sharp increase in online payments, often through credit cards or digital wallets, the committee wanted to ensure the payment system was fair, accessible, competitive and affordable.

“It’s clear from existing evidence that payment schemes and digital wallets will have growing cost implications for small businesses and consumers. This inquiry offers the opportunity to do a deeper dive into that,” he said.

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