By David Crowe
The federal government will spend $1.5 billion on payments to reduce household and small business energy bills from April next year under a deal with the states to cap the price of coal and gas and help vulnerable customers.
The financial assistance will flow through the states to help Australians on income support and other federal social services programs, while the size of the small businesses that can qualify is yet to be decided.
Prime Minister Anthony Albanese announced $1.5 billion in subsidies for low-income households.Credit: AAP
The federal cash will be used to reduce bills and will not be paid directly to households, but the exact mechanism will be determined by federal and state treasurers in time to deliver the help early next year.
Those who do not get the cash payments could gain a benefit worth around $230 from the changes to electricity bills in 2023-24 on average for households, according to calculations by federal officials that assume prices will rise 23 per cent in that year but would have risen 36 per cent without the new measures.
Speaking at an online press conference from Kirribilli House, where he is isolating with COVID, Prime Minister Anthony Albanese said the bill subsidies were a better approach to cash handouts, which he said would add to inflation.
“It will also be temporary but will start in the second quarter of 2023,” he said.
In a sign of the urgent work to enforce the new plan, federal parliament will be recalled next Thursday to pass laws that give the government clear authority to cap the price of gas for domestic customers and bring down a vital input cost for gas-fired electricity generators and big manufacturers.
The deal came on a day when NSW Premier Dominic Perrottet also chose to fast-track a major project he said would add to gas supply, granting special status to the pipeline that would carry gas from the Narrabri field in northern NSW if it is developed as planned by Santos over the next four years.
The decision will connect the field to the east-coast gas network and means the gas could flow to Victoria if the state needs additional supplies, but the decision was greeted with dismay by environmental groups that want the gas to stay in the ground and the pipeline scrapped.
Albanese reached a broad agreement with state and territory leaders on Friday to introduce four new measures after declaring he wanted a solution by Christmas: capping price of domestic coal; putting a price ceiling on gas; federal compensation for some coal-powered generators; and the $1.5 billion to reduce bills.
Opposition Leader Peter Dutton accused the government of breaking an election promise to cut bills by $275, which was a forecast for 2025 in Labor’s climate policy.
Dutton said the national cabinet deal did not do anything to increase gas and other power supplies and would not stop electricity prices going up.
“I think we’re going to look back in 12 months time realising that this was a catastrophic decision made by a very bad government,” he said.
The price controls are a drastic new measure to shield Australians from a global energy shock, imposing a cap of $125 per tonne on coal – half the rate on the spot market – and about $12 per gigajoule on gas for electricity generators and other big energy users.
The October 25 federal budget forecast a 56 per cent increase in electricity bills over the next two years and a 44 per cent increase in household gas bills over two years.
The national cabinet was held virtually because the prime minister was isolating at Kirribilli House. Credit: AAP
Federal officials estimate the price controls on gas will mean prices rise 18 per cent this year and 4 per cent next year, halving the forecast rise because the compound effect would be a 23 per cent increase over two years.
The increase in electricity prices will be harder to change because regulators have already set the default market offer for customers for this financial year, but the officials think the increase next financial year will be 23 per cent rather than an earlier forecast of 36 per cent.
As a result, the compound increase in electricity prices over two years would be 47 per cent rather than 56 per cent, based on calculations by this masthead based on the federal government’s adjusted forecasts.
Crucially, the change to the price forecasts is based on the impact of the new caps on coal and gas before the additional impact of the $1.5 billion in assistance for households.
Canberra and the states are yet to agree on how those payments will be made, but the $1.5 billion would amount to about $250 per household if it went to all of the six million recipients of income support under federal social security programs.
Treasurer Jim Chalmers will negotiate the details with state counterparts and wants them to match the federal money, something most can do because they already offer bill subsidies for vulnerable customers.
A couple on the Age Pension in NSW, for instance, receives a $285 state subsidy on their electricity bill and this could be doubled under the new deal to offset any increase in prices.
While the big coal-producing states of NSW and Queensland will impose the price controls on coal for domestic customers – while leaving export contracts alone – the gas controls will be legislated by the federal government and will require parliament to meet.
NSW is expected to pass new laws next year to enforce the price cap on coal, while Queensland is expected to use existing regulations to take similar action.
Albanese acknowledged the concerns in NSW about the impact of the coal price cap on the cost of production – an issue for coal-fired power generators that pay contract prices above the cap – and said the Commonwealth would provide financial support.
Queensland and NSW raised concerns about the loss of royalties from coal, but both have accepted the federal government will not compensate them for this. The cap does not affect the 85 per cent of coal production Australia exports.
The Queensland government expects the outcome to include more federal support for two pumped hydropower projects it wants to build, as well as funding for a ring-road in Rockhampton.
The national cabinet meeting, held online because Albanese is still isolating after a positive coronavirus diagnosis on Monday, concluded after 90 minutes of talks that agreed on the $1.5 billion in federal assistance while leaving further meetings to decide the mechanism to deliver the help.
The NSW government pushed for a rebate scheme to add federal assistance to existing state programs that deliver payments to retailers and enable them to deduct the amounts from electricity bills before they go to customers.
That demand triggered another round of discussions with other states about similar measures elsewhere, complicating the talks.
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