Canberra and the states have agreed to cap coal and gas prices, and provide additional rebates for Australians on low and middle incomes, as part of a $1.5bn intervention that will shave hundreds of dollars off power bills.
After a national cabinet meeting on Friday, governments have agreed to cap gas prices temporarily at $12 per gigajoule and cap coal prices at $125 per tonne. Parliament will be recalled next week to implement the change.
Officials said on Friday consumers would have been $230 worse off without the price caps.
The Albanese government has set aside $1.5bn to fund additional consumer rebates for people on federal government payments. Officials say the rebates, to be co-funded with state governments, will deliver power bill savings worth hundreds of dollars next year, although the benefits will vary from state to state.
The rebates will be applied directly to power bills, rather than cash handouts. People on income support, pensioners, holders of a seniors health card, recipients of the family tax benefit and small businesses will be eligible for the relief, with the states to match the commonwealth contribution dollar for dollar.
The new temporary price caps mean retail electricity prices will increase by an estimated 23% rather than a 36% rise anticipated in the absence of intervention. Gas prices will increase by 18% this year and 4% next year. The price caps are set to remain in place for 12 months.
In a press conference from his Sydney residence, Anthony Albanese said the package finalised by national cabinet was necessary given “extraordinary times”.
The extraordinary regulatory intervention was triggered by a new forecast in the October budget of a 56% increase in power prices by the end of 2023. About 20% of that predicted increase is already flowing through the system.
Albanese – who is isolating after contracting Covid-19 – told reporters Friday’s actions were unusual, but necessary, given the crippling impact of high power prices on households and businesses.
“These are actions that wouldn’t have been contemplated by governments in normal times, but governments throughout the world have had to take action and we are taking action here today,” the prime minister said.
“We’re taking urgent action to shield Australian families from the worst impacts of these price hikes. We’re working hand in hand with our state and territory partners to find the best outcomes for all Australians – keeping Australians in work, keeping industry going, and making sure that families and businesses can pay their bills.”
While the legislation giving effect to the price caps has been drafted, the treasurer, Jim Chalmers, will now embark on consultation with his state counterparts over the design and delivery of the consumer rebates.
Commonwealth support for the rebates is contingent on the the states and territories matching funding on a dollar-for-dollar basis, and relief being provided as a credit directly on recipients’ power bills.
The federal Treasury advised the prime minister and the premiers not to deliver the rebates as a cash handout because of the risk that would fuel inflationary pressure. Governments agreed to deliver the price relief through existing rebate schemes already delivered by state governments.
The Australian Energy Council – which represents Australia’s energy retailers – was cool on the impact the price caps would have on lowering power prices, with the chief executive, Sarah McNamara, urging caution.
“Industry is yet to see the detail or analysis that shows how the price caps will impact bills. If more lower-priced fuel is available, over time those savings may lead to lower wholesale electricity prices, but that will take time to flow through to end users.”
The gas lobby, the Australian Petroleum Production & Exploration Association (APPEA) went on the offensive, warning the temporary price cap of $12 a gigajoule on gas would “kill investment confidence and reduce future supply”.