Passed by Parliament in June, the tax package put up to $1,080 in the pocket of working Australians.
Not all taxpayers received the refund in July, but predictions were widely made that a boost in spending would flow through to retailers as the first wave of payments arrived in bank accounts.
Coupled with the Reserve Bank of Australia’s two successive cuts to interest rates in June and July, and the increase to the minimum wage that took effect on July 1, a modest recovery was expected in the sector as more money was flowing into the economy.
Yet the month-on-month retail spending figures for July showed a surprising and disappointing result – a contraction of 0.13 per cent, following the 0.4 per cent rise in June.
The figures are sobering, given that the ‘election effect’ – the depressive impact of the May Federal election on retail spending – is well and truly over.
Throughout the year, retail trade has been patchy and certain sectors are facing structural change and diminishing returns – particularly department stores. That may be dragging down the overall figures.
Notably, the clothing, footwear and personal accessory category – of which jewellery is part – declined by 1.36 per cent in July after June’s 1.95 per cent increase.
Those gains were likely buoyed by end- of-financial-year sales. Indeed, the end of the financial year could also have played a part in the July figures, as consumers reviewed their spending and planned their household budgets for the next 12 months.
The continuing impact of the drought and the shift to online shopping should also be stated as significant factors impacting retail performance.
The lack of willingness to spend discretionary income was reflected in a 0.73 per cent fall in the cafés, restaurants and takeaway food category, while household goods and food retailing – which includes household groceries – saw a slight uptick.
But while the figures are dispiriting for the hard-hit retail trade, the ARA rejects talk of a ‘retail recession’.
The definition of a recession is two quarters of negative growth, rather than one month of anaemic trade. With the bulk of tax refunds arriving in August, the next round of figures are likely to show improvement.
Meanwhile, annual retail sector growth is at 2.36 per cent, with improving conditions in Western Australia and Tasmania as well as steady results in Victoria and Queensland, the two states that together make up 44 per cent of Australia’s population.
In order to stave off recession, the ARA is calling for consumers to ignore sensationalist and alarmist headlines, and not to be discouraged from making big purchases due to unfounded recession fears.
Consumers should feel confident enough to spend their tax cuts on products and services at local retail businesses – for example, a piece of jewellery they have been window shopping for months. This will provide a welcome boost to the economy.
With retail being Australia’s largest private-sector employer and the bedrock of the Australian economy, it is vital that consumer confidence is allowed to flourish.
To that end, the ARA also calls on policymakers on both sides of Parliament to explore all stimulatory measures possible in order to get growth going again.