Aussies Are Spending Less On Clothes And Cafes Despite Tax Cuts

The government's tax cuts have not immediately paid off in economic gains and Australia's economy remains "weak" according to some, as the latest figures show an unexpected drop in retail spending.

It's a "bad" sign for the economy, according to the National Retail Association.

"The July results are not good news for retailers, we were hopeful of far better figures following a strong sales performance for June,” CEO Dominique Lamb said.

"A drop in turnover shows that consumer confidence remains stubbornly low, despite measures such as the personal tax cuts and reduction in interest rates."

Spending on clothing and footwear dipped a full one percent in July, while other luxury spending on things like cafes and restaurants (down 0.6 percent) and department stores (down 0.2) also took a hit.

Retail spending is down, and experts are wondering what happens next for the economy. Photo: Getty

The whole retail sector sagged 0.1 percent nationally in July, the numbers coming despite the government's much-vaunted tax cuts giving people up to $1080 as a refund.

Economist Saul Eslake raised the caveat that many people would not have lodged their tax return immediately, and others may still be waiting to get their refund after a larger-than-usual rush to lodge at the start of the financial year -- but said the figures were not a good sign.

"It's a bit of a surprise. Many people had expected spending would be stimulated by the tax refunds that would flow from the multi-year tax plan, but that doesn't appear to have happened," Eslake told 10 daily.

"Growth has consistently undershot both Reserve Bank and government expectations. If that continues, it may make it difficult for the government to achieve its forecasts for a budget surplus."

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It was the start of a mixed day for economy watchers, with the Australian Bureau of Statistics also releasing the latest current account figures, showing the first surplus -- that is, Australia bringing in more money through goods, services and payments than it sent out -- in 44 years.

The retail trade figures, released by the ABS on Tuesday morning, found that spending had dipped again after a 0.4 percent rise in June. Spending dropped in six of the eight Australian states and territories, rising only in Western Australia (up 0.6 percent) and the Northern Territory (0.3 percent).

Aussies spent less on cafes, restaurants and takeaway. Photo: Getty

Spending fell in Queensland (-0.2 per cent), New South Wales (-0.1 per cent), South Australia (-0.5 per cent), Victoria (-0.1 per cent), the Australian Capital Territory (-0.5 per cent), and Tasmania (-0.1 per cent). The Commonwealth Bank raised concerns about NSW figures especially, saying growth in retail spending was the lowest in the state since August 2011.

"A fall in retail in an individual month isn't unprecedented," Eslake said, noting that the same figure had dropped in both December 2018 and April this year.

"It's not unusual, but it's consistent with what has been fairly sluggish growth in spending and retail spending for some time. It's a reflection of slow growth in wages and incomes."

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Which is why, he theorised, that spending on discretionary items -- like eating out or takeaway meals, and new clothes or shoes -- had dropped, while essential goods like food and household goods both recorded slight upticks in growth.

Photo: Getty

Just last month, the owner of Australia's David Jones stores claimed there were "sustained and unprecedented economic pressures and structural changes in the Australian market".

"The retail sector in Australia is currently in recession and the Australian economy has slowed to its weakest level since the global financial crisis in 2009," said the South African-based Woolworths Holdings, in announcing a nearly half-billion dollar writedown of the David Jones network.

The National Retail Association urged people to "not shy away" from spending "extra money" received in tax cuts

The government has been under pressure to take more bold action in stimulating a lagging economy and wage growth in recent months, with the Reserve Bank already having slashed the official cash rate to historic lows. The property market has taken a dive (but recently recovered), wage growth is low, and the government has been criticised for splashing out on tax cuts while at the same time promising a budget surplus.

Eslake said that further international factors -- such as any escalation in the 'trade war' between the USA and China, or factors in Europe such as Brexit or a feared recession in Germany -- could make things even trickier for Australia.

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Some social advocates have again raised the point that economists have said raising welfare payments -- such as the Newstart allowance -- would be an important and effective boost to the economy.

"The Government can effectively work to boost the flagging economy by acting on poverty and homelessness," said Australian Council of Social Services (ACOSS) director of policy, Jacqueline Phillips.

"An increase to Newstart would immediately boost the economy... People on Newstart have to spend every cent in order to get by – they don’t have the option of saving – so an increase to Newstart would immediately stimulate the economy while supporting people to get through tough times."

The RBA on Tuesday left interest rates at the low of one percent. Governor Philip Lowe noted that economic growth had been "lower than earlier expected", pointing the finger at low income growth and declining house prices -- but expected conditions to "strengthen gradually" in coming times.

The Commonwealth Bank said it expected two further interest rate cuts in coming months, one in November and another in February 2020.

Eslake warned that stats from one single month should not sound the alarm bells, but others have been putting pressure on the government to take action.

Scott Morrison
Scott Morrison is under pressure to do more to stimulate the economy. Photo: AAP

"For some time now the economy has been weak," Labor's shadow treasurer Jim Chalmers said on Tuesday.

"The Liberals want to pretend that this is just all about one soft quarter in the economy but the slowest growth in a decade at least has not just emerged overnight. The problems in our economy have been there for some time before the election, and the economy has deteriorated since the election."

Chalmers claimed the economy was "floundering" and that Australians were "struggling" amid the combination of economic factors.

"The Reserve Bank can't do all of the heavy lifting on its own. The Reserve Bank has cut interest rates to a third of what they were during the Global Financial Crisis because the Government has barely lifted a finger to support growth in the economy," he said.

Chalmers had warned before the release of the current account stats that the government would have to answer questions if the numbers were bad -- but the first surplus since 1975, and the largest on record, will be welcome news for Prime Minister Scott Morrison.

Photo: Getty

On Monday, he had tried to soften the ground in the case of any bad result, saying the national economy faced "challenges" and that he expected the June quarter to be "very difficult".

"I suspect the June quarter results will be soft, but what matters is the plan that is already in place to address that, both now and into the future," Morrison said at a press conference.

"So our view is we have got the plan, let's have a look at the September quarter results which will take into account obviously the first round impacts of what came out of the tax cuts and the cash rate cuts, and then we'll go from there.

"You know, in difficult global economic times, Australians don't want a Government that responds with knee-jerk reactions."