Research Reveals the Waste Associated with Poorly Designed Government Policies

Governments around the world have spent billions protecting households from higher energy and food prices. But new International Monetary Fund research suggests much of that assistance has been delivered through unnecessarily expensive policies.

The IMF's October 2026 World Economic Outlook finds that subsidising prices can require between three and 22 times as much government expenditure as targeted cash payments to achieve comparable protection for lower-income households.

Australia's electricity rebates provide an excellent case study.

What has the IMF discovered?

The IMF examined cost-of-living crises across 76 countries, drawing on evidence spanning three decades.

Its findings distinguish between two approaches.

The first reduces prices through subsidies, tax concessions or direct controls. The second allows market prices to adjust but compensates vulnerable households through income payments.

The IMF estimates that consumer subsidies require three to six times the fiscal resources of targeted transfers to deliver equivalent protection. Subsidies paid to producers can cost 14 to 22 times as much.

During Europe's 2022–23 energy crisis, less than 20 cents of every euro spent suppressing energy prices benefited the poorest fifth of households.

The economic explanation is straightforward. Broad subsidies assist everyone consuming the subsidised product, regardless of financial circumstances. Price suppression can also discourage conservation when energy is scarce.

Australia's $6.8 billion experiment

Between 2023 and December 2025, the Australian Government committed approximately $6.8 billion through three rounds of electricity bill relief.

The original 2023–24 program provided $1.5 billion, principally targeting concession recipients and other eligible households.

In 2024–25, the Government committed $3.5 billion to provide every household with a $300 electricity rebate, alongside assistance for eligible small businesses.

A further $1.8 billion funded $150 rebates during the second half of 2025.

The schemes delivered immediate, visible relief. But the universal payments made no distinction between wealthy households and those struggling to pay their bills.

Importantly, Australia's fixed-dollar electricity credits were not conventional price caps. They reduced bills without generally changing the additional price paid for each kilowatt-hour consumed.

Consequently, the IMF's headline efficiency estimates cannot simply be applied to Australia's arrangements.

The inflation illusion

The ABS data illustrates another important consequence.

In January 2026, measured electricity prices were 32.2% higher than a year earlier. However, excluding the effects of Commonwealth and state electricity rebates, the underlying increase was only 4.5%.

The difference largely reflected the expiration of previous assistance, rather than an equivalent increase in electricity tariffs.

By August 2026, electricity inflation was 13.2%, with the ABS again identifying the cessation of Commonwealth rebates as a major factor.

Rebates can therefore reduce measured inflation when introduced and increase it when withdrawn, without permanently changing the underlying cost of supplying electricity.

What would better policy look like?

The IMF recommends temporary, targeted assistance, preferably delivered through existing social-security systems.

In Australia, that could mean larger payments to low-income households, pensioners and other vulnerable groups rather than distributing identical amounts to every household.

Such assistance could provide greater protection for those most affected while reducing expenditure elsewhere.

There is a trade-off. Universal rebates are administratively simple, broadly popular and provide immediate price relief. Targeting introduces eligibility rules and risks excluding households facing genuine hardship.

Nevertheless, the economic objective should be clear.

The success of cost-of-living policy should be measured by how effectively it protects vulnerable households, not by the number of households receiving a government payment.

The IMF's new research provides a compelling case for Australia to reconsider how it delivers that assistance.