Big problem with our tax cut bonanza
TAX cuts failed to boost retail spending in the first few weeks of their rollout, as the Government braces for a grim economic report card today.
There are fears Australia's economy may have gone backward in the June quarter, putting the nation one step closer to recession.
The Government is pinning its hopes on the September quarter picking up as the impact of tax cuts and successive interest rate cuts wash through.
But in a bad start, retail figures released by the Australian Bureau of Statistics yesterday revealed people were spending less on retail in July, down 0.1 per cent, as the first of the tax cuts were paid out.
In welcome news for homeowners, the Reserve Bank yesterday kept interest rates on hold at the record low of 1 per cent, but has left the door open to cuts later in the year.
The Morrison Government is prepared for bad news as the national accounts are released tomorrow.
Drought, US-China trade war, a struggling global economy and even the uncertainty surrounding the May election are expected to have contributed to a soft economy for the June quarter.
Prime Minister Scott Morrison has already predicted "soft" economic growth for the quarter, but said appropriate stimulus measures like the tax cuts and expanding trade agreements were already in place.
"In difficult global economic times, Australians don't want a Government that responds with knee-jerk reactions," he said.
Treasurer Josh Frydenberg is today expected to focus on what is expected to be a stronger September quarter, bolstered by rate cuts in June and July.
The impact of the tax cuts is also anticipated to be felt by then, with 5.3 million tax returns worth $13.7 billion having been issued to date.
While retail spending was down in July, the tax cuts weren't passed until July 3 while the first tax returns did not start flowing until mid-month.
About 810,000 tax returns had been filed by July 9, compared to 450,000 in the same period the previous year, but it would have taken time for the money to reach people's accounts.
Shadow treasurer Jim Chalmers said the Reserve Bank had been doing the heavy lifting to stimulate the economy, and the Government needed to do more.
"The Reserve Bank now faces the difficult balancing act of trying to support the economy with record low interest rates, while preserving flexibility should global downside risks materialise," he said.