The mood has turned grim.
As opinion polls show a slump in support for the Abbott government before next Tuesday’s budget, consumer confidence has also tumbled amid fears of massive spending cuts by Treasurer Joe Hockey.
The ANZ-Roy Morgan confidence index shed a further 4.2 per cent in the past week, its first gauge of the commission of audit’s 86 recommendations to cut government spending and speculation the government will impose a debt and deficit levy on higher-income earners.
It has now dropped eight per cent in the past fortnight.
One saving grace is that the Reserve Bank has no intention of lifting the cash rate soon in anticipation of “subdued” government spending.
The central bank on Tuesday left the cash rate at its record low of 2.5 per cent, where it has stood since last August.
RBA governor Glenn Stevens said monetary policy was “appropriately configured” to foster sustainable economic growth and inflation outcomes consistent with its 2-3 per cent target band.
“On present indications, the most prudent course is likely to be a period of stability in interest rates,” he said in a statement.
While acknowledging the recent improvement in employment numbers, Mr Stevens said it would probably be some time before unemployment declined consistently.
National Australia Bank senior economist Spiros Papadopoulos thought that was stating the obvious; however, it did confirm the RBA was a long way from hiking rates.
Retailers are particularly relieved, concerned that a tough budget could hurt consumer spending.
National Retail Association chief executive Trevor Evans said the RBA’s decision was critical for strong retailer and consumer confidence while economic growth was fragile.
Retailers insist they are fully aware of the challenging budget circumstances confronting the government, but are concerned a debt levy on middle- and higher-income earners, even if temporary, would affect discretionary spending.
A separate survey found that even though wealthy Australians – considered to be those with household incomes of $150,000 and above – are feeling more optimistic about the economic outlook compared with a year ago.
Less than one-third intend to increase their spending.
Concerns about rising inflation during the next year contributed to their reservations.