Jim Chalmers faces pressure to scrap energy rebates amid fears of RBA rate rise

There is now no relief in sight from the cost-of-living crisis and interest rates might even be forced higher, following shock inflation figures driven by soaring power prices.

Federal Treasurer Jim Chalmers has been told extending the rebates could result in the RBA hiking interest rates next year. Picture: Martin Ollman

Jim Chalmers has been warned against extending energy rebates amid concerns government spending is fuelling high inflation which will dud future rate cuts or worse, force the Reserve Bank into hiking interest rates in 2026.

This comes as Wednesday’s Consumer Price Index revealed inflation had grown to 3.8 per cent in October 2025, with the surge being fuelled by a 37.1 per cent year-on-year increase in electricity bills.

The Reserve Bank’s preferred measure of inflation, the trimmed mean, was also above the 2 to 3 per cent target band at 3.3 per cent.

While soaring electricity bills were the biggest contributor to rising inflation, the Treasurer is still mulling whether to continue the $75-per-quarter bill relief, which has to date costed taxpayers $5.3bn.

Mr Chalmers said the final decision would be guided by the December 3 GDP print from the national accounts, ahead of the Mid Year Economic Financial Outlook in late December.

“We’ll make that decision closer to the release of the mid-year update,” he said.

However he said that rebates would not run indefinitely.

“They’re a really important part of our budget, but they’re not a permanent feature of our budget, and we’ve made that clear.”

Shadow Treasurer Ted O’Brien also could not be moved to say whether the payments should be extended, telling reporters at a National Press Club address that: “We will wait to see if the Treasurer wishes to put something on the table”.

Despite this, Coalition have repeatedly attacked Labor for failing to deliver its 2022 election promise to reduce energy prices by $275.

Independent economist Saul Eslake urged Labor to not continue the rebates, despite the political pressure.

Deputy Leader of the Opposition Ted O'Brien at the National Press Club of Australia in Canberra. Picture: Martin Ollman

While inflation was outpacing wage growth when the rebates were first introduced, the trend has reversed.

Cost-of-living relief was also being delivered through tax cuts, plus lowered interest rates.

Mr Eslake said the money would be better spent reducing electricity prices, putting forward an East Coast gas reserve to boost supply in the system.

“That would be a more sustainable, credible response to rising electricity prices than just yet another rebate scheme, and it wouldn’t cost the government,” he said.

“It might piss off Santos and those other gas companies that have swallowed up all the east coast gas, but they don’t vote.”

Increasing government spending could also keep inflation high and prevent the RBA from cutting rates further.

“Inflation is the result of aggregate demand exceeding aggregate supply, so government spending adds to aggregate demand pressure and complicates the Reserve Bank’s task of bringing demand into line with supply,” he said.

Mr Eslake said rate cuts were now unlikely. Picture: Martin Ollman

Although Mr Eslake didn’t believe the RBA would be forced in hiking rates, he said the changes of multiple rate cuts, “let alone one” had been “absolutely reduced”.

However other economists said a cash rate increase could be on the cards.

Judo Bank’s chief economic adviser Warren Hogan said the potential for a 2026 rate cut was “gone” and urged Labor to curb its spending to avoid increasing demand which in turn stokes high inflation.

“If we want to get this inflation under control, unless the government’s prepared to do something, which they won’t, then the RBA has got to move,” he told Sky.

Mr Hogan also urged Labor to slash the energy rebates, lashing the policy as a “temporary … smoke and mirrors” cost-of-living fix.

“Cost of living relief in the form of rebates and giving people money makes inflation worse by putting more money in the economy and putting more demand in the economy,” he said.

“We’re now getting this clear evidence that that whole policy strategy from this government for the last two years … (is) not right.”

Swiss bank UBS also tipped a rate rise starting “most likely” in the fourth quarter of 2026.

It forecasted the RBA would increase rates by a “cumulative 50 basis points by the end of 2027” which would bring the cash rate from 3.6 per cent to 4.1 per cent.

“We think a relatively cautious approach initially seems more likely, rather than a sudden lift in rates,” it said.

While power bill hikes dominated politics, the Coalition capitalised on a freak power outage which dimmed the lights during question time.

Liberal and National MPs waved their phone torch lights, jeered and whooped, screaming: “We can hear but we can’t see you,” and yelling “black out Bowen”.

For Steve Buchholz, chaos turned into pantomime with the Wright MP waving his flailing arms into neighbour Tim Wilson, as he mimicked trying to feel his way through a pitch black room.

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Originally published as Jim Chalmers faces pressure to scrap energy rebates amid fears of RBA rate rise