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Australians are feeling the pinch too much to blow their tax cuts — and falling interest rates aren't helping boost confidence either

Jack Derwin
  • Despite recent tax cuts and two interest rate cuts, confidence in the economy is continuing to slide, according to the latest consumer and business surveys.
  • The latest ANZ consumer survey shows that those stimulus measures haven't been enough to arrest a long-running decline in consumer sentiment, with Australians reporting they are putting off big-ticket purchases as their finances are squeezed.
  • Unsurprisingly, businesses are suffering as a result, with the NAB business survey noting a "significant loss of momentum" in the economy and "little improvement" ahead, as spending dries up.

The major question being asked of the Australian economy is: 'what is it going to take to turn it around?'

With substantial wage growth missing in action, unemployment stuck at 5.2% and spending continuing at a trickle, the government moved to hand out tax cuts to ease cost of living pressures. The Reserve Bank of Australia (RBA) meanwhile shaving 0.5% off the official interest rate, lowering loan repayments across the country.

As suspected, however, that's done little to get Australians spending in the real economy as confidence slips again. According to the latest ANZ consumer survey, confidence fell 1% overall, with Aussies reporting a 7.1% decline in thinking now was 'the time to buy a major household item'.

"This sub-index fell to its lowest level since April and is well below average. It seems that tax cuts, lower interest rates and the associated turn in the housing market are not yet motivating people to consider a major household purchase," ANZ head of Australian economics David Plank said in a note on the results.

ANZ economist Adelaide Timbrell tweeted that the lack of a bounce due to tax cuts was very much expected.

https://twitter.com/Adelaide_T_Econ/status/1171236096321056773

"After all, we've got bigger bills, flatter wages and higher debt," she said.

Accordingly, despite a small bounce in confidence in the overall economy, "sentiment toward the current economic outlook had declined for five consecutive weeks to its lowest level in more than two years", Plank said.

That's unsurprisingly rocked businesses, which are struggling as consumers tighten their belts, according to the NAB business survey released on Tuesday.

“Business conditions declined slightly in [August]. As we have noted in previous months, the decline in business conditions since early 2018 has been broad-based and has continued to track at below average levels in recent month," NAB chief economist Alan Oster said in a note on the results.

"This is concerning, because while conditions remain positive, it points to a significant loss in momentum in the business sector."

While confidence ticked up slightly on the month, it remains below average. Meanwhile reduced discretionary spending was biting the retail sector particularly hard.

"Business confidence in the retail sector saw a reasonable lift, likely related to the government’s tax cuts, but quite worryingly there appears to have been little boost to activity in the sector with conditions weakening further – the sector is currently facing recessionary levels of activity according to our measure," Oster said, noting he saw "little improvement" ahead.

That again paints a bleak picture of an economy that seems impervious to the charm of the RBA, and the government's current approach.

"With a significant loss of momentum in activity, and inflation indicators remaining weak, the survey points to the need to the need for further stimulus in the economy," Oster said.

"Indeed, we expect a further easing in interest rates from the RBA and think that some greater fiscal support will be needed from the government to kickstart growth."

With the government reluctant to spend, the RBA reluctant to cut, and the economy reluctant to meaningfully grow, it's a three-way standoff.

As economists predict 0.5% of more cuts by early next year, the RBA again looks destined to be the first to break.