Cost of living combo for Australian households to cost $14.6b

Households will gain $14.6 billion in federal help with expenses ranging from energy subsidies to healthcare as part of a budget agenda that seeks to drive down inflation and prevent rising prices eating into family incomes.

Treasurer Jim Chalmers will reveal the spending total on Monday with a promise that the federal outlays will not fuel inflation because the new measures will cut consumer costs, with one element giving 5.5 million households relief on their energy bills.

Cost of living relief will be a centrepiece of Tuesday’s federal budget.Credit: Peter Braig

But the Coalition is challenging the government to prove it can reduce inflation from its current level of 7 per cent, turning consumer prices into a key political contest before the budget is announced on Tuesday night.

The $14.6 billion package is broader than first thought because it goes beyond energy costs to include help with medicines and other essential items, while also extending the bill relief to small businesses.

“People are under the pump. We’ve carefully calibrated and designed this budget so that it takes pressure off the cost-of-living rather than add to it,” Chalmers said in a statement.

The government is also preparing to broaden income support for single mothers, increase payment to unemployed people over the age of 55 and could also boost rent assistance, but it is yet to confirm whether it will increase the JobSeeker rate for all recipients regardless of age.

The energy assistance will be a major component of the package and will offer each household several hundred dollars against their power bills, although this will be limited to the most vulnerable Australians such as pensioners and those on lower incomes.

“More than five and a half million households will get some assistance with their electricity bills and around a million small businesses will be eligible as well,” Chalmers told ABC News on Sunday.

“And they will all be eligible for several hundred dollars to help with their electricity bills to take some of the edge off what [are] the key drivers of these cost-of-living pressures. And so, we have had to strike arrangements with each of the states and territories. It will be different depending on where you live and what the electricity prices look like.”

The $14.6 billion estimate covers the four years of the budget forward estimates and is expected to include some measures that have already been announced, such as policies to cap the price of some medicines.

The government is also planning to subside childcare fees from July this year under a $4.7 billion package already funded separately in the October budget.

Chalmers has tipped a substantial boost to the budget bottom line after a verbal slip on live television on Sunday that hinted at the prospect of a surplus.

The treasurer said the stronger outlook would include “upward revisions to surplus”, before he corrected himself in the interview on Sky News to emphasise the revisions would show the big gains in tax revenue this year.

Rich Insight economist Chris Richardson has forecast a deficit of $7.5 billion for this financial year but said a small surplus was possible, although he and others are predicting deeper deficits in subsequent years because commodity prices are expected to fall and this would reduce federal tax revenue.

The cost of living package will also provide help with medicines and other essential items.Credit: Louie Douvis

The major budget decisions revealed in recent days include $14.1 billion to increase wages for aged care workers over four years and at least $2.2 billion for Medicare, offset by revenue measures such as $3.3 billion in higher tobacco excise and $2.4 billion in higher taxes on oil and gas producers, as well as an earlier decision to collect $3.2 billion from increased taxes on superannuation.

Chalmers took aim at the Coalition by saying it left behind “a trillion dollars of debt with not enough to show for it” when it lost power at the last election.

“This budget will help Australians doing it tough and will make inroads in cleaning up the mess we inherited from the Coalition,” he said.

Commonwealth debt was $896.9 billion in gross terms on Friday. The debt was $256 billion in the May 2013 budget issued by Labor before it lost power that year, after which the Coalition held office for nine years.

Liberal deputy leader Sussan Ley claimed the better outlook for the budget bottom line was a vindication for the Coalition.

“If indeed there is a surplus, it will be because of the strong economy that the government inherited from us,” she told Sky.

“But a surplus is one thing, we all know it’ll be a big spending, big taxing, Labor Budget.

“The question is: will it deliver that plan to tackle inflation, which is a separate matter? And will it actually take the tough decisions to reduce debt and deficits over the longer term in order that we actually bring inflation down?”

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