Australians want immediate relief from the budget, but economists warn the biggest fixes could take years

Australians looking for meaningful relief in next week’s federal budget may need to look beyond the headline sweeteners, with economists warning some measures could take years to make a difference.

As Treasurer Jim Chalmers prepares to hand down next week’s federal budget, the government is under growing pressure to deliver relief Australians will actually notice.

WATCH THE VIDEO ABOVE: Treasurer defends budget amid inflation warnings

From fuel prices and tax offsets to housing and healthcare, experts say the real test will be whether the budget eases pressure without making inflation worse.

Fuel and energy

Fuel and energy costs are expected to be among the biggest focal points of the budget, particularly as instability in the Middle East continues to push global oil prices higher and place pressure on inflation.

But while fuel excise cuts and energy rebates are highly visible politically, economists are divided on how effective they are long-term.

Australian National University’s Tax and Transfer Policy Institute senior research fellow Dr Ralf Steinhauser said petrol prices were often “felt” more intensely by Australians because they are constantly visible.

“The way they advertise on every corner, in the way that we have used them in the car while we’re driving, think about them and think about where we get our next top-up at a good price, these are very much visible to people,” he said.

Steinhauser said many Australians felt fuel price rises more sharply than some other household expenses, even where the financial impact was comparatively moderate.

He warned broad fuel excise cuts were often poorly targeted and did little to address Australia’s deeper dependence on imported fuel.

“It’s basically giving it to everyone, no matter if they’re driving a lot for work or very little, no matter if they have a big car that’s taking up a lot of fuel … or if they’re driving a small car for these long distances to a job that’s paying them the minimum wage,” he said.

Steinhauser argued the budget should also focus on longer-term measures that reduce household dependence on imported fuel altogether.

“I would like the budget to focus on the more long-term changes that we would need to see in order to get over these repeated shocks that we keep on having every few years,” he said.

He pointed to household batteries, rooftop solar, and electric vehicle incentives as examples of policies that could help reduce long-term energy costs and improve resilience against future global fuel shocks.

Tax cuts, offsets, and cash relief

Household relief measures are expected to dominate the budget, with speculation mounting around tax offsets, rebates and other measures aimed at easing pressure on Australians.

Reports suggest the government is considering a $200 to $300 offset for working Australians.

Steinhauser said measures that immediately increased take-home pay were more likely to be noticed by households than tax relief delivered later through annual returns.

“So the equivalent would be to reduce their tax burden on their income right away, but it would be something that needs to show up ideally through the pay cheque immediately rather than at the end of the year when you do your tax returns,” he said.

He pointed to earlier lump sum payments during the global financial crisis as an example of support that low-income Australians largely spent on essentials.

“They were actually spending it on groceries and non-durable goods,” he said.

But some economists warn broad cash handouts risk adding to inflationary pressure if too much money enters the economy too quickly.

University of New South Wales Emeritus Professor Peter Swan said reducing government expenditure would ultimately have a greater long-term impact on inflation than temporary handouts.

“What I would like to see is a massive reduction in expenditure,” he said.

Swan argued rising government expenditure had contributed to inflationary pressure and warned further cash handouts risked worsening the problem.

“That’s going to add significantly to government debt and put higher pressure on inflation. But it’s not going to do much for those recipients of that money,” he said.

Despite this, Commonwealth Bank economists said delayed and targeted relief measures were helping limit short-term inflationary pressure.

Housing and rental pressure

Housing affordability is expected to remain one of the defining battlegrounds of the budget, with mounting pressure on the government to address rising rents and home ownership barriers.

But economists warn many housing measures take years to filter through to households.

Steinhauser said while housing announcements often generated major political attention, renters hoping for immediate relief were unlikely to see rapid changes.

“I think the best you can probably hope for is that in the medium term, rents will no longer go up, and so we’ll plateau for a while,” he said.

“But I wouldn’t expect a drop in rental prices as an immediate consequence of any of these high-level measures that the federal government can put in place.”

Economists expect housing measures to focus on longer-term structural reform rather than changes likely to quickly lower rents or house prices.

The government is reportedly considering changes ranging from reducing the 50 per cent capital gains tax discount to reintroducing the pre-1999 indexation model, which taxed gains after adjusting for inflation.

Economists say any reforms are likely to be phased in gradually, potentially through grandfathering arrangements that protect existing investors while applying new rules to future purchases.

Swan warned some proposed housing tax reforms could reduce rental supply if investors exited the market.

“That will decrease the supply of rental homes and force many people currently providing rental housing to sell their properties,” he said.

But others have disputed claims that changes to negative gearing would trigger a rental crisis, arguing the overall impact on supply and demand would likely balance out over time.

The bigger question facing the budget

While Australians are likely to closely watch for immediate hip-pocket relief, economists say many of the country’s biggest economic pressures cannot be solved overnight.

Repeated short-term support packages may ease immediate pain, but experts warn longer-term issues, including housing supply, energy resilience, productivity and government spending pressures, remain far more difficult to fix.

The government is also facing growing pressure to balance household relief with rising long-term costs across major programs, including healthcare and the NDIS.

Recent reforms aimed at slowing the growth of the NDIS are expected to become a major part of the government’s broader budget savings strategy.

At the same time, Labor is continuing to heavily invest in Medicare and cheaper medicines, including expanded bulk billing incentives and lower PBS co-payments aimed at reducing out-of-pocket healthcare costs for Australians.

But economists warn there are limits to how quickly governments can ease financial pressure while also trying to keep inflation and spending under control.

And while Australians may be hoping for immediate relief on budget night, economists warn the underlying pressures driving high rents, energy costs and inflation will take far longer to fix.