Federal budget: How Anthony Albanese hopes to end cost-of-living crisis by Christmas with one simple measure – here’s why it’s risky

Labor hopes Australia’s cost-of-living crisis will end by Christmas with $300 in electricity rebates for everyone regardless of income and help for renters.

State budget forecasts expect inflation to moderate to 2.75 percent by December 2024, even as new revised tax cuts for lower and middle earners kick in.

That would mean the CPI would hit the Reserve Bank of Australia’s 2-3 percent target a year earlier than the RBA predicted in its last May forecasts.

From July 1, all Australian households receive a $300 energy rebate as one million small businesses receive $325 as part of a $3.5 billion package over three years from 2023-24.

The Treasury estimates this will knock half a percentage point off headline inflation in 2024/25 and is «not expected to add to broader inflationary pressures».

Labor hopes Australia’s cost of living crisis will end by Christmas with $300 electricity rebates for everyone regardless of income and help for renters

The measure will be on top of the existing Energy Bill Relief Fund, which will provide up to $500 to low-income households through June 2025 as part of a program funded equally by the federal and state governments.

Labor went to the last election promising to cut average annual electricity bills by $275 by 2025, and with an election a year away, Treasurer Jim Chalmers is desperate to avoid the government being accused of breaking its pledge to the voters of 2022.

He used his third budget speech to welcome the Australian Bureau of Statistics’ previous approval of electricity rebates.

«Keeping the lights on for families and businesses – and keeping the pressure down on inflation,» he said.

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Labor has also promised more help for tenants with the capital’s vacancy rate below one per cent – leading to double-digit annual rises in weekly leasing costs – and high inflation.

Dr Chalmers announced $1.9 billion, over five years from 2023-24, to increase the maximum rate of Commonwealth Rent Assistance by a further 10 per cent, on top of the 15 per cent increase in the previous budget, to help a million renters.

«Rising rents are another big part of the inflation challenge and we support tenants who need our help,» he said.

“This is the first retrospective increase in Commonwealth Rent Assistance in over 30 years. And more much-needed help for young people and renters of all ages who can make it.”

Budget surpluses… but not for long

Labor is campaigning for its economic management and Dr. Chalmers announced a second consecutive budget surplus, becoming the first federal Labor treasurer since his hero Paul Keating in 1989 to achieve it.

State Budget forecasts expect inflation to moderate to 2.75 per cent by December 2024, even as new revised tax cuts for lower and middle earners kick in (Treasurer Jim Chalmers is pictured presenting his third budget on Tuesday night )

State Budget forecasts expect inflation to moderate to 2.75 per cent by December 2024, even as new revised tax cuts for lower and middle earners kick in (Treasurer Jim Chalmers is pictured presenting his third budget on Tuesday night )

A surplus of $9.3 billion has been announced for 2023/24, following a record surplus of $22.1 billion for 2022/23 – the first for the federal government since 2007.

“Last year, our responsible economic leadership achieved the first surplus in 15 years. We now expect another surplus of $9.3 billion this year,» said Dr. Chalmers.

But the Treasury has budget deficits from 2024/25, with finances in the red by $28.3 billion, rising to $42.8 billion in 2025/26.

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This would occur as iron ore prices fell to just $60 a tonne – down from levels above $100 – as thermal coal prices fell to $70 a tonne – from the current $140 a tonne.

Falling prices for key commodities means the government has less revenue from corporate taxes, with every $10 per tonne drop in iron ore prices expected to reduce gross domestic product by $5.3 billion in 2024–25 and $5.3 billion in 2027–28 rise to approximately US$11.0 billion.

That equates to $500 million a year in lost tax revenue.

The cost of the National Disability Insurance Scheme is estimated to increase by $11.1 billion over the four years from 2023–24 to 2026–27.

Tax relief

The Treasury expects inflation to moderate despite a revised third stage of tax cuts coming into effect on July 1, which will see workers on the $45,906 minimum wage get $805 back instead of nothing under the former coalition government’s plan passed in 2019.

Those with incomes above $120,000 will get $2,679 back instead of $1,875.

The Treasury has been adamant that the revised tax cuts, which will cost $1.3 billion over five years from 2023-24, will not worsen inflationary pressures.

«The government’s decision to overhaul tax relief through cost-of-living tax cuts will provide relief to all 13.6 million taxpayers and will not affect the inflation outlook,» it said.

Dr. Chalmers welcomed his campaign in the Labor caucus to give more back to people on lower and middle incomes.

«This government and this budget deliver for every Australian: tax cuts for every taxpayer,» he said.

“Our new tax cuts for Central Australia make up the biggest chunk of cost of living relief in this Budget.

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“From July 1, all 13.6 million taxpayers will have their taxes reduced. And for 84 percent of taxpayers and 90 percent of women, a bigger tax cut than they would have had under the previous government.

“This is a reward for the hard work of our nurses and teachers, trucks and craftsmen. And 2.9 million people making $45,000 or less who would get nothing.

“The average benefit is $1,888 a year, that’s $36 a week. Our tax cuts are better for families, communities, women and young people, and better for business and the economy.”

The easing of inflationary pressures makes it more likely that the Reserve Bank of Australia will cut rates, or at least not raise them.

Borrowers have already endured 13 increases in 18 months, with the pain starting in May 2022 shortly before Labor was elected.

The cash rate is already at a 12-year high of 4.35 percent and monthly variable mortgage payments are 68 percent higher than two years ago.

The Reserve Bank is far less bullish than the Treasury, forecasting headline inflation to rise from 3.6 percent in the March quarter to an annual rate of 3.8 percent by June 2024.

The consumer price index fell to 2.8 percent only in December 2025 — a full year later than the Treasury.

RBA governor Michele Bullock has already hinted that her board has discussed a possible rate hike this month but not a rate cut, suggesting more pain could be in store for borrowers if electricity rebates and job-hire assistance fail to reduce inflation.

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