Australians reap tax refunds worth $17.4 billion, as RBA signals tax cuts will boost spending

| 26.09,19. 01:57 PM |



Australians reap tax refunds worth $17.4 billion, as RBA signals tax cuts will boost spending




Photo: Retailers are hoping for a boost in the run-in to Christmas. (ABC News)

Almost 7 million Australians have reaped tax refunds worth more than $17.4 billion so far this year, but Reserve Bank Governor Philip Lowe says with about half of the population yet to lodge their annual returns, it is too early to judge whether income tax cuts have had an impact.


Struggling retailers are hoping for busier trade in the lead-up to Christmas, with another rate cut expected on Tuesday.


Trade is also expected to lift as tens of millions of Australians eligible for tax cuts of between $255 and $1,080, get their refunds when they lodge their returns.


The Australian Taxation Office told ABC News by Wednesday morning, it had issued more than 6.6 million tax refunds worth more than $17.4 billion year, and the average refund amount was $2,636.


To date, the tax boost and record-low interest rates have not spurred big spending at the shops, with many Australians choosing instead to pay down household debt.


But Dr Lowe has said household disposable income should lift off the back of tax cuts and lower interest rates.


On Tuesday night, Dr Lowe gave the strongest indication yet that another cut in the official interest rates will be delivered next week in an effort to drive unemployment down.


The cash rate is expected to drop on Tuesday, for the third time this year, to a record low of 0.75 per cent.


Dr Lowe said many Australians still had not lodged their tax returns, and past experience suggests about half of the tax refunds will be spent over coming quarters.


He predicted that would boost aggregate household income by 0.6 per cent this year, and lower interest rates would also help reignite consumer spending.

Cafe owners closing shop


The signs so far point to little consumer appetite to spend.


Brisbane coffee entrepreneur Phillip Di Bella told ABC News the combination of weak consumer confidence and rising electricity prices had hurt cafe owners.


"We supply over 800 cafes Australia wide with coffee and we probably see one a month close now," he said.


"We are the biggest in the country in what we do, so when we're seeing one a month close, that's pretty alarming figures for our industry."


But he said cafes were starting to get busier and were counting on solid trade in the lead-up to Christmas.


"We're heading in towards Christmas and things always start to ramp up around October/November when there's a real good vibe in the air, so I think the timing is good, the timing will help with the confidence for people and hopefully the retailers as well."


Flight Centre managing director Graham Turner also has not seen spending take off yet, and has little faith it will.


The consumer sentiment from our experience in Australia is pretty weak at the moment and I don't think a $1,000 tax cut is going to make any difference, but I hope I'm wrong," he said.


Are we headed for a mega spend?


It may be too early to contrast the current weak spending with the last time Australians got a major cash injection.


It was in 2009, during the time of the global financial crisis, when then-prime minister Kevin Rudd handed about 8 million people a $900 cheque.


Armed with the extra cash, consumers went out and spent a record $19.2 billion at the shops in January of that year.

"The consumer sentiment from our experience in Australia is pretty weak at the moment and I don't think a $1,000 tax cut is going to make any difference, but I hope I'm wrong," he said.


Are we headed for a mega spend?


It may be too early to contrast the current weak spending with the last time Australians got a major cash injection.


It was in 2009, during the time of the global financial crisis, when then-prime minister Kevin Rudd handed about 8 million people a $900 cheque.


Armed with the extra cash, consumers went out and spent a record $19.2 billion at the shops in January of that year.

.


ABC News asked people outside Melbourne's Bourke Street Mall earlier this week if they were spending or saving their tax cuts.


Not everyone is splashing their cash.


Kate Jewell came to Melbourne for a weekend trip and said she spent her tax cut of about a $1,000 partly on shopping and partly on her kids' education.


Peter LeRoy said he got the full $1,080, and it went to paying for general expenses.


"It's disappeared it's gone," he said.


"I used it just to live on. It probably went on groceries, but I didn't buy a flat-screen television."


Sinead Matthews, a stay-at-home mum, said "with tax benefits from my husband's job we've paid off the credit card, we're trying to get debt free".


Mark Grau has not lodged his return yet, but when he gets his $1,080 tax cut he will consider "rolling it over into an investment, possibly super".


Household debt weighs down spending


EY chief economist Jo Masters said one of the key differences this time compared to post-GFC time — when many Australians did go out and buy big-screen televisions at the behest of the government — is that household debt is high, wage growth is close to historic lows, and people are more concerned about job security.

"Household debt is about 190 per cent of disposable income at the moment," Ms Masters said.


The barrage of bad news could be playing into people's lack of confidence.


"When I've got a lot of debt and I'm worried about my job security … and I'm worried about the economy because I keep reading about trade wars and the fact that growth here is slowing, it's not surprising that I'd rather pay off debt rather than spend," she said.


?How much income tax will you save


The economic picture will become clearer when the August retail trade figures are released next week.


The last reading painted a gloomy picture of consumer spending and the economy, with retail sales falling 0.1 per cent in July.


Dominque Lamb from the National Retail Association said good signs are beginning to show.


Foot traffic at malls is higher, and she hoped that would translate to more sales soon.


"We're going to see money spent within homewares, certainly furniture, and white goods and other things for around the home," she said.


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