Energy relief on the cards as cost of living bites

“So we’ll continue to work on that, but we’re also working to make sure the budgets are taking shape. So it’s important to get that balance right.”

In March, Finance Minister Jim Chalmers predicted that this year’s budget would show a deficit of $42.1 billion and that gross government debt would rise to $1 trillion. But higher commodity prices and the strength of the labor market helped the budget improve.

The 2024-25 budget ended up being more than $17 billion stronger than Chalmers’ estimate. As of the end of September, the budget was $5.3 billion, above expectations.

Chalmers is expected to deliver his mid-year budget update within the next five weeks. The final decision on the expansion of energy subsidies will need to be made a few days before the mid-year update is published.

Albanese said it was crucial to keep the budget situation and cost of living pressures under control, but the government wanted to ensure ordinary people were protected.

“We want an economy that works for people, not for people’s sake,” he said.

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Independent economist Chris Richardson said the government had to choose between good policy by abandoning energy rebates or good policy by extending the rebates and putting pressure on the Coalition.

While it may be premature for subsidies to ease the pressure on consumers, he said that is now over.

“My real fear is that the concrete around them will start to settle and we’ll get stuck in them,” he said.

Australian Chamber of Commerce and Industry Chief Executive Andrew McKellar said the government needed to focus its attention on the key issues facing the country’s energy sector.

“It has to be acknowledged that this will only be a temporary measure. This will provide temporary relief. At some point these chickens need to come home to roost,” he said.

“We need long-term solutions. If we want to achieve more competitive, more affordable energy prices, we need to invest in future energy supply, which is what business is really looking for.”

Further cuts in interest rates would also ease cost-of-living pressure for the one-third of Australians with a mortgage.

But on Monday, Central Bank deputy governor Andrew Hauser said the possibility of a new rate cut, on top of the three rate cuts made so far this year, was increasing.

Speaking at a banking conference in Sydney, Hauser said finding ways to make Australia’s economic “racehorse” run faster would likely require a boost in productivity with greater investment from the country’s private sector.

He said the economy could be “stuck at the track fence and unable to move forward” like a racehorse.

Lowering interest rates will only increase inflationary pressures when productivity needs to increase so that the economy can grow faster.

“I don’t think you have to be crazy or fanatical to think that future rate cuts might be coming,” he said.

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“Maybe you’re worried about how much space you have left right now.”

Financial markets, which just two weeks ago priced in at least two more interest rates by the end of next year, now believe the bank will keep interest rates steady until 2027.

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