Finance Finance News All eyes on tax cuts as spending yet to improve

All eyes on tax cuts as spending yet to improve

A woman pays for a purchase.
Economists and the RBA are eagerly waiting to see how Australians spend their tax refunds. Photo: Getty
Twitter Facebook Reddit Pinterest Email

Australians’ pursestrings remained tightly shut through July, sinking sales growth to its lowest point in almost two years, Commonwealth Bank has confirmed.

The bank’s monthly Business Sales Index found sales growth fell from 3.8 per cent in to 3.2 per cent in July, led by notable falls in spending on entertainment (down 1.4 per cent), retail (down 1.1 per cent) and vehicles (down 0.9 per cent).

The latest round of data is also the fifth consecutive month that amusement and entertainment spending has dropped, which CommSec chief economist Craig James told The New Daily “largely reflects the uncertain period” before the May federal election.

Amusement and entertainment spending falls.
Spending on entertainment has fallen for five months. Source: Commonwealth Bank

“Consumers may have also put off purchases until they received the tax cut,” Mr James added.

“We will just need to see how the category tracks in the next few months when more have received the tax cuts.”

Nevertheless, Mr James noted that consumer confidence is “OK”, employment is lifting, and interest rates remain low, “so the tax cut may indeed be put to work in this entertainment category”.

Retail and recreation falling

The Commonwealth Bank data is broadly in line with separate research from Australian Industry Group, whose Performance of Services Index for the same month showed falls in both retail and recreational services sectors.

“The index for ‘recreational, personal & other’ services fell by 1.3 points to 46.4 points in July (trend),” Australian Industry Group reported.

“This marks five months of contraction following a very brief period of mildly positive results around the start of the year. Low consumer demand was reflected in weak sales, new orders and employment results for this sector.”

July marked the eighth month of contraction for retail sales, with some leading industry commentators suggesting the gradual shrinking of the sector is being driven by an eroding middle class.

Reserve Bank plays ‘wait-and-see’ game

At their latest cash rate meeting, the Reserve Bank of Australia cautioned the outlook for consumption “remained uncertain”.

But while it remains difficult to predict where consumption data will go in the near future, the board added that possible risks to consumption figures are “more balanced” than they have been in recent months.

“The low- and middle-income tax offset was expected to boost income growth, with a surge in the lodgement of tax returns since the end of June,” the RBA board minutes said.

“In addition, signs of a recovery in some established housing markets suggested that the dampening effect of declining housing prices on consumption could dissipate earlier than had previously been assumed.”

Commonwealth Bank’s Business Sales Index also noted the recent flatness in sales data could be the result of hesitant consumers waiting to receive their tax refunds before spending.

“All the reports do indicate that the money is flowing from the tax office to hard-working Aussie workers – now people just have to work out what they want to do with the tax offsets,” the report said.

“Certainly consumer confidence is positive, interest rates are super low and the lift in the minimum wage is also delivering extra spending power. So we are in ‘wait and see’ mode.”

View Comments