‘Hard decision’: Millions of households face energy bill shock as government axes cost-of-living subsidy

Millions of Australian households are bracing for a fresh blow to their hip pockets, as a key cost-of-living relief designed to keep energy bills a bit lower is ceased in the new year.

The $75-a-quarter discount that has been softening the blow of sky-high power bills will be axed at the end of December, Treasurer Jim Chalmers calling it a “hard” decision.

“We’ve been upfront with people and said that these were never going to be a permanent feature of the budget,” he said.

But the timing could not be worse for households, with the planned ending of the subsidy coinciding with energy costs being one of their biggest expenses.

Figures released by comparison site Finder shows more than one in four Australians say their energy bill was one of their most stressful expenses in November 2025.

Meanwhile, 28 per cent of households reported receiving an unexpectedly high energy bill in the past 12 months.

Households rebate ends

Despite hopes from those struggling with their household bills, the federal government has axed the energy rebate at the end of this pay cycle.

The Energy Bill Relief Fund provided a universal $300 household subsidy for the 2024–25 financial year, as well as small businesses getting some relief on their power bills.

The government then extended a $150 subsidy to cover Australians from July this year, with the current offer due to expire on December 31.

This means at the start of the new year, every single household in the country will see their energy bills rise.

Flow on impacts across the economy

Australians are being warned they will face more than just higher energy costs, with the ending of the subsidy flowing onto other parts of the economy.

According to AMP’s research in October removing the subsidy would have added about 25 per cent to households bills and lifted the consumer price index (CPI) by about 0.4 to 0.5 per cent.

This in theory would mean CPI — which came in at 3.8 per cent for the month — would have been closer to 4.2 per cent, although this is complicated by the Australian Bureau of Statistics moving from quarterly to monthly figures.

Economists are yet to work out if it will distort the figures on a quarterly basis.

AMP chief economist Shane Oliver explained to NewsWire removing the subsidy will be complicated and will have impacts on other parts of the national economy.

“There is a bunch of things that are indexed to the CPI so if the headline inflation rate goes up then everything linked to inflation also gets a lift,” Dr Oliver said.

“That would include things like pensions … It is also a key input to the minimum wage case with the Fair Work Commission liking to provide workers will a real rise.”

A real wage rise would mean wages jump above inflation.

“There are a bunch of other things indexed to the CPI including university fees, the alcohol and tobacco excise,” he said.

“That was one of the positive arguments the government and others would put for the rebates that by keeping down headline inflation you keep down the price of various items, but now that goes in reverse as the rebate is removed,” he said.

In total Dr Oliver suggests it will impact around 10 per cent of the CPI basket.

He questioned: “This is the problem with having these subsidies in the first place, you put them on, it has this artificial effect of pulling the price down, but what do you do when you remove it?”

“It creates all sorts of problems when you remove it, obviously households pay more for electricity, but you have these flow on effects for items indexed to CPI.”

Permanent bill relief

Speaking in Canberra on Monday, treasurer Jim Chalmers argued that while the temporary subsidies would end, more permanent bill relief had started through Medicare, falling medicine prices using the Pharmaceutical Benefits Scheme (PBS) and lowering taxes.

“The nature of that cost of living help is evolving over time, but our commitment to providing cost of living relief is constant,” he said.

He also highlighted the second and third round of tax cuts for Australians, from July 1, 2026, and July 1, 2027, as an example of this ongoing help.

In the first round, Labor will reduce the 16 per cent tax rate to 15 per cent for those earning between $18,201 and $45,000, ahead of a further reduction to 14 per cent the subsequent year.

“We’re providing help with electricity bills via the tax system and by providing other cost of living help, as I’ve said a couple of times now, that cost of living help is changing over time, but our commitment to providing meaningful and responsible assistance is constant,” he said.

“So, the tax cuts will help people pay those bills.”

The opposition were quick to attack the changes with shadow treasurer Ted O’Brien calling it a “budget disaster for all to see”.

“Sound budget management is the bedrock of strong economic management,” he said.

“When you fail to manage the nation’s finances, you lose the capacity to assist those in need.

“That’s why Labor is leaving struggling households to fend for themselves today.”

Households ‘punished’ for policy failure

Betashares chief economist David Bassanese says everyday Australians were inadvertently being punished for a lack of government investment.

“We have a failure of energy policy in this country and households will pay the consequences of that,” he said.

“The government has been putting a band aid on that failure through this expensive subsidy for a year, but it can’t last.

“It is an inefficient way of protecting households.”

Mr Bassanese says both sides of government are to blame as Australia does not have enough energy to meet demand.

“The transition to renewables seems to be relatively slow, so it is not picking up the slack in the reduction in non renewables,” he said.

“That is because for many years we didn’t really have an energy policy.”