So much for all the hot air from the Federal government, some economists and even the Reserve Bank – that so-called $1,080 tax refund has turned out to be a fizzer and failed to boost retail sales in the September quarter.
In fact, retail sales volumes (the best measure of retail activity) fell 0.2% in the quarter against a rise of 0.1% in the June quarter (revised down from the 0.2% original estimate) and no change in the March quarter.
That means for the first nine months of the year retail sales volumes are lower than at the start of the year. The fall was a tiny 0.1%, but it’s a fall and means that tax refund has bombed badly.
Seeing the forecast had been for a rise of 0.4% the news will make for an interesting discussion at today’s board meeting of the Reserve Bank which will discuss an interest rate. No change is expected but the odds of another cut have risen with the weak retail sales report.
The weak performance means that not only has the tax refund failed to spark a rise in retail sales, but so have three interest rate cuts this year – so far.
While retail sales rose a seasonally adjusted 0.2% in the month of September, that was half the 0.4% rise in August, according to the Australian Bureau of Statistics.
News of the weaker than expected retail sales will not go down well at the Reserve Bank which had been including the expected benefit from the refund in its call that the economy had weached “a gentle turning point’.
One factor that should help is an expected pick-up in household disposable income. Many households are currently receiving larger tax refunds due to the low and middle income tax offset. These payments will boost aggregate household income by 0.6 per cent this year,” Reserve Bank governor, Phil Lowe said in his speech in Armidale, NSW, in late September.
“Past experience suggests that around half of these tax refunds will be spent over coming quarters. Household disposable income is also being boosted by lower interest rates, although the effect is uneven across the community, with lower rates reducing the income of those households who rely on interest income. Household spending should also be supported by an increase in housing turnover. Working in the other direction, though, is a further contraction in residential construction activity.”
Fairfax Media reported on Monday that the average size of the tax refunds was $400 not over $1,000 as confidently forecast by Prime Minister Morrison and his Treasurer, Josh Frydenberg.
“The Morrison government’s promised $1080 low and middle income tax boost to 4.5 million Australian taxpayers which would lift the economy has turned into a $420 bump barely noticed by the nation’s shopkeepers,” Fairfax Media reported.
“There was a mix of results at the industry level this month” according to Ben James, Director of Quarterly Economy Wide Surveys for the ABS. “Rises were seen in other retailing (0.8 percent), cafes, restaurants and takeaway services (0.6 percent), and food retailing (0.1 percent).
“These rises were slightly offset by a fall in clothing, footwear and personal accessory retailing (-0.5 percent) and department stores (-0.2 percent). Household goods (0.0 percent) was relatively unchanged,“ he said.
The ABS said that in seasonally adjusted terms, there were rises in NSW (0.3 percent), Western Australia (0.7 percent), Tasmania (1.0 percent), South Australia (0.2 percent), the Australian Capital Territory (0.1 percent), and the Northern Territory (0.1 percent). Victoria (0.0 percent) was relatively unchanged. Queensland (-0.1 percent) fell in seasonally adjusted terms in September 2019.
“The trend estimate for Australian retail turnover rose 0.2 percent in September 2019, following a rise of 0.2 percent in August 2019. Compared to September 2018, the trend estimate rose 2.4 percent.
“Online retail turnover contributed 6.3 percent to total retail turnover in original terms in September 2019. In September 2018 online retail turnover contributed 5.6 percent to total retail.
“For the September quarter 2019, there was a fall of 0.1 percent in seasonally adjusted volume terms. This follows a rise of 0.1 percent in the June quarter 2019.
“The quarterly fall in volumes was led by cafes, restaurants and takeaway food services (-1.0 percent), and department stores (-0.1 percent). Food retailing (0.0 percent) was relatively unchanged. Household goods (0.9 percent), other retailing (0.3 percent), and clothing, footwear and personal accessories retailing (0.3 percent) rose in seasonally adjusted volume terms.” the ABS reported.