Labor hopes Australia’s cost of living crisis will be over by Christmas thanks to $300 electricity rebates for everyone, regardless of how much they earn, and help for renters.
Treasury Budget forecasts indicate inflation will moderate to 2.75 per cent by December 2024, even as new revised tax cuts for low and middle income earners come into force.
This would see the consumer price index fall within the Reserve Bank of Australia’s 2 to 3 per cent target a year earlier than the RBA predicted in its latest forecasts in May.
From July 1, all Australian households will receive a $300 energy rebate, while one million small businesses will receive $325 as part of a $3.5 billion package over three years from 2023 to 2024.
The Treasury estimates this will shave half a percentage point off headline inflation in 2024/25 and is “not expected to increase broader inflationary pressures”.
Labor hopes Australia’s cost of living crisis will end by Christmas thanks to $300 electricity rebates for everyone, regardless of how much they earn, and help for renters.
The measure will add to the existing Energy Bill Relief Fund that, through June 2025, will provide up to $500 to low-income households as part of a program funded equally by the federal and state governments.
Labor went into the last election promising to reduce average annual electricity bills by $275 by 2025 and with an election due within a year, Treasurer Jim Chalmers is desperate to avoid the government being accused of breaking a commitment to voters of 2022.
He used his third budget speech to praise the Australian Bureau of Statistics’ previous support for electricity rebates.
“Keep the lights on for families and businesses and keep downward pressure on inflation,” he said.
Labor has also promised more help for renters with vacancy rates in the capital below one per cent (leading to double-digit annual increases in weekly rental costs) and high inflation.
Dr Chalmers announced $1.9 billion, over five years from 2023 to 2024, to increase the Commonwealth Rental Assistance cap rate by another 10 per cent, on top of the 15 per cent increase in the previous budget, to help a million tenants.
“Rising rents are another big part of the inflation challenge, and we are supporting tenants who need our help,” he said.
‘This is the first consecutive increase in Commonwealth Rental Assistance in more than 30 years. And more much-needed help for young people and renters of all ages who are having a hard time.”
Budget surpluses… but not for long
The Labor Party is campaigning on its economic management and Dr Chalmers announces a second consecutive budget surplus, making him the first Labor federal treasurer since his hero Paul Keating in 1989 to achieve this.
A surplus of $9.3 billion for 2023/24 has been announced, following a record surplus of $22.1 billion for 2022/23, which was the first for a federal government since 2007.
‘Last year, our responsible economic management generated the first surplus in 15 years. “We now expect another surplus, of $9.3 billion this year,” said Dr Chalmers.
But Treasury documents have budget deficits from 2024/25, with finances in the red by $28.3 billion rising to $42.8 billion in 2025/26.
This would be occurring as iron ore prices fell to just $60 a ton – below levels above $100 – while thermal coal prices fell to $70 a ton.
A drop in key raw material prices means the government has less tax revenue from companies, and every $10 per ton drop in iron ore prices will reduce gross domestic product by $5.3 billion in 2024. 25, rising to around $11 billion in 2027-28.
That equates to $500 million a year in forgone tax revenue.
The Treasury expects inflation to slow even as revised stage three tax cuts come into effect on July 1, allowing workers on the $45,906 minimum wage to get back $805 instead of nothing. according to the plan of the previous coalition government legislated in 2019.
Higher earners earning $120,000 receive $2,679 instead of $1,875.
The Treasury was adamant that the revised tax cuts, which cost $1.3 billion over five years between 2023 and 2024, would not worsen inflationary pressures.
“The government’s decision to redesign tax relief through cost-of-living tax cuts will provide relief to 13.6 million taxpayers and will not affect the inflation outlook,” he said.
Dr Chalmers praised his campaign within the Labor group to give more back to low and middle income people.
“This government and this budget deliver results for all Australians – a tax cut for all taxpayers,” he said.
‘Our new tax cuts for central Australia are the biggest part of the cost of living relief in this budget.
‘Starting July 1, 13.6 million taxpayers will get a tax reduction. And for 84 percent of taxpayers and 90 percent of women, a bigger tax cut than they would have had under the previous government.
‘This is about rewarding the hard work of our nurses and teachers, truck drivers and shopkeepers. And the 2.9 million people who earn $45,000 or less would have received nothing.
‘The average profit is $1,888 a year, that is, $36 a week. Our tax cuts are better for families, communities, women and young people, and better for businesses and the economy.’
An easing of inflationary pressures makes it more likely that the Reserve Bank of Australia will cut rates, or at least not raise them.
Borrowers have already endured 13 increases in 18 months, with the pain beginning in May 2022, shortly before the Labor election.
The cash rate is already at a 12-year high of 4.35 per cent and variable monthly mortgage payments are 68 per cent higher than two years ago.
The Reserve Bank is much less optimistic than the Treasury, forecasting headline inflation will rise from 3.6 per cent in the March quarter to an annual rate of 3.8 per cent by June 2024.
The consumer price index did not fall to 2.8 percent until December 2025, a year after the Treasury.
RBA Governor Michele Bullock has already indicated that her board this month discussed a possible rate hike but not a rate cut, suggesting there could well be more pain for borrowers if electricity rebates and housing aid Labor Party rents fail to reduce inflation.