Australia | Nov 14 2008
By Andrew Nelson
There’s no doubt that the Australian government’s monetary and fiscal policy is aimed at boosting growth in Australia, especially in the household sector. The intention? To fend off the depredations of a prolonged recession.
On its latest estimates, Westpac figures that well over $20bn has been doled out to taxpayers in the form of tax cuts, interest rate reductions and additional fiscal stimulus.
Westpac Senior Economist Matthew Hassan notes the net impact of the policy changes has seen disposable incomes increase by $59.6bn in 2008-09 compared to an increase of $49.8bn in 2007-08. This translates to growth in household disposable income of 8.6% in 2008-09 from 7.7% in 2007-08. This comes despite the substantial slowdown in jobs and wages growth.
On the banks’ numbers, this policy has so far boosted aggregate household disposable income by 3.6% in 2008-09. While the bank expects those in the mortgage belt to hang on to some of the gain, possibly paying down their loan principal, it also expects those payments targeted at lower income households and pensioners will be mostly spent.
So while Westpac expects consumers will be cautious with the windfall, the bump should still be enough to at least carry the retail sector through what would have probably been a very difficult Christmas period. Overall, Westpac is forecasting real consumer demand will rise by 2.2% in the December quarter.
Westpac notes similar one-off fiscal payments in recent years led to a jump in retail spending over and above trends at the time. All in all, the bank expects a lift in spending to the tune of about $6bn, which would produce a 2% spike in Q4. However, Hassan cautions the benefit won’t be universal, with spending on big ticket and discretionary items likely to remain weak. He also thinks the boost will be temporary, with demand softening again over the course of 2009.
Hassan highlights results from a recent survey by the Australian National Retailers’ Association as supporting his view, with about 40% respondents due to receive a fiscal bonus planning to spend it on living expenses, Christmas gifts, or themselves. He points out that more than half of those respondents were in the “Seniors” group, who are set to receive the biggest part of the fiscal stimulus benefits.
The government’s success in increasing the growth of household disposable income despite a slowing wages and jobs growth is a remarkable achievement, says Hassan, who points out other countries such as US and UK would be envious. He thinks it is a rare government that can raise the growth rate of household disposable income in the current environment.
At least a solid Christmas seems to be on the cards for retailers in Australia as a whole, so the real question now is what will happen to Australia’s consumer sector in the medium term? Hassan thinks that once the initial boost has run its course, sustaining the momentum through 2009 will be difficult, especially given households will still be wearing major hits to their finances in the form of falling investment values and slipping house prices.
If stimulus payments and lower interest rates are ultimately unable to foster a lasting recovery in areas like housing and business investment, then Hassan thinks the outlook for jobs and household incomes will continue to look perilous.