Economists agree with Jim Chalmers that energy rebates ‘have to end’

Jim Chalmers has been forced to concede Labor’s $6.8bn energy rebates will have to come to a hard end, as economists push for the funds to be directed towards reducing the deficit and welfare.

Treasurer Jim Chalmers holds a press conference at Parliament House in Canberra. Picture: Martin Ollman

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Jim Chalmers has been forced to concede that Labor’s $6.8bn energy rebates will have to come to a hard end, as economists push for the funds to be directed towards reducing the deficit and welfare payments.

The Treasurer on Tuesday said he had only extended the energy subsidies for six months because the relief would one day “taper away and will have to end”, with Labor making decisions in every federal budget on “what we can do to help”.

As he welcomed the Reserve Bank of Australia’s decision to cut interest rates by 0.25 per cent, Dr Chalmers refused to rule out extending the relief measure again but he would evaluate the “constraints and the pressures” in place at the next budget.

“We only extended it for six months rather than 12 months, because we know that at some point, this electricity bill relief will taper away and will have to end,” Dr Chalmers said.

Independent economist Chris Richardson said the energy rebates were a poor use of funds because they were not means tested.

Mr Richardson said the money could instead be funnelled into addressing the structural deficit and increasing the unemployment benefit.

“It’s bad policy, pure and simple, they shouldn’t keep going,” Mr Richardson said.

“Hopefully, now that the election is done and dusted, they won’t keep going.

“They are currently scheduled to end at the end of this year, and hopefully that’s the last we see and hear of them.”

The criticism comes after members of Anthony Albanese’s Economic ­Inclusion Advisory Committee called for the rebates to be scrapped, and funds redirected towards welfare payments and support the installation of solar panels and batteries in struggling households.

The Labor-appointed committee compiles a report for the government before each federal budget.

It has repeatedly called for increases to welfare payments.

ANU economics professor Bob Breunig, who is a member of the inclusion committee, said energy subsidies should not be extended into next year because of their inflationary impact.

“It’s probably a good idea not to extend them,” he said.

“These kinds of subsidies are inflationary because, even though you’re indirectly putting money in the economy because you’re freeing up other funds that people can spend, we know that people would use that money to drive up prices on other things.”

Economist Saul Eslake says the energy subsidies are no longer needed. Picture: David Killick

Economist Saul Eslake said the “cost-of-living crunch” had largely passed, meaning the energy subsidies were no longer needed in the same way.

Mr Eslake argued the savings could be used to reduce the deficit as well as welfare.

He also criticised the GST deal that will see the federal government give Western Australia $7bn more than it needs for siphoning away funds that could be directed to supporting Australians experiencing hardship.

“That is something the government could use to reduce the deficit, or find something more worthwhile to spend it on,” Mr Eslake said.

AMP chief economist Shane Oliver.

AMP’s chief economist Shane Oliver said ending the subsidies at the end of the year would result in a 25 per cent jump in power bills, with the increase in the cost of electricity proving to be a “permanent phenomena”.

Mr Oliver said the government would be better placed spending money on measures that reduced electricity prices themselves, such as support to install home batteries, instead of providing subsidies.

“From the point of view of households and headline inflation, there is an argument to extend it,” Mr Oliver said.

“But from a purely economic point of view, I suspect it’s probably best to discontinue them and use the money better elsewhere, because the subsidies are not in any way helping lower electricity prices.”

The $300 a year rebate announced in last year’s budget was set to expire on June 30 but will be extended to the end of this year, adding $150 in support for every home in the country.