McCrann: $300 power rebate needs extending to cap inflation

Treasurer Jim Chalmers decided to fiddle down inflation with his $300 energy rebate, but problems are looming as price pressures persist.

Treasurer Jim Chalmers. Picture: Dan Peled / NewsWire

Treasurer Jim Chalmers will have to replay his $300 ‘cheques in the mail’ in the 2025-26 financial year; and it will be an unquestionably good thing for him to do so.

Yes, it’s a fiscal fiddle; it is aimed more at fiddling down the headline inflation rate than being a genuine help to the tens of millions of Australians in a cost-of-living crisis.

If the treasurer, the broader government and the PM in particular, really wanted to help people with their power bills, and cost-of-living more broadly, they would start by sacking one Chris Bowen.

But given the reality of Bowen, the minister for destroying our electricity system, the $300 power bill rebate is a pretty good third best.

Let me stress again, in a sane polity, it would be beyond awful. Better, far better, to have a half-sane energy policy and (much) lower power bills all round upfront.

That said, the rebate does take some of the pain out of soaring electricity bills. For everyone.

It’s like an across-the-board - and ultra-fair, flat - $3bn tax cut.

And no, it won’t fuel spending and thus inflation. It just moderates some of the impact of bracket creep.

It will supposedly cut headline inflation by 0.6 per cent in the September quarter.

Although the way the rebate’s being delayed - by the usual bureaucratic cock-up - that inflation reduction might be delayed until the December quarter.

It’s important to understand that it’s only the first $75 that works to cut recorded headline inflation.

The subsequent three $75 rebates work only to keep inflation from going straight back up. And there’s the rub. As the rebates only run through the 2024-25 financial year, as soon as we get into 2025-26 - the September quarter next year - and there’s no rebate, up will go inflation.

So, the Reserve Bank forecasts Tuesday had headline inflation dropping to 3 per cent for this 2025 calendar year. The forecast would have been around 3.6 per without the rebate.

And just 2.8 per cent (instead of 3.4 per cent) for the 2024-25 fiscal year.

But then the rebate ends, and the RBA forecast headline inflation shooting up to 3.7 per cent for the 2025 calendar year.

Importantly, headline inflation would ‘only’ be around 3.1 per cent in 2025 (on the current RBA forecasts: we shall have to see what reality actually delivers), if the rebate is extended for 2025-26 as well.

One response would be: how can the government ever take it away, if, when it does, it puts the inflation rate up 0.6 per cent?

I would argue, next year is a particularly bad time to be hiking headline inflation. Not such a problem, if you are hiking inflation from, say, 2 to 2.6 per cent.

But more fundamentally, the government is deliberately - if, in its collective stupidity, unknowingly - hiking power prices, so it’s entirely reasonable to demand it provide some continuing offset in the budget.

Especially attractive is that the $75-a-quarter acts like an across-the board tax cut, with the biggest relative benefit flowing to lower income earners.

Originally published as McCrann: $300 power rebate needs extending to cap inflation