Budget 2017 brings little relief for retailers

Sue Mitchell
May 10, 2017
AFR

The 2017 federal budget has delivered little relief for retailers struggling to grow sales as cautious consumers cut back on discretionary spending.

Citigroup has estimated that the average household will be about $55 a year better off in 2018 and 2019 as budget measures including Medicare indexation, extended access to childcare rebates and small business tax deductions offset changes to family benefits, higher tobacco excises, higher university fees and GST on goods bought online from overseas.

Assuming households spend the savings, it would boost retail spending by just 0.2 per cent, said Citigroup’s head of research, Craig Woolford.

However, plans to increase the Medicare levy by 0.5 per cent in 2020 to fully fund the National Disability Insurance Scheme would cost households an extra $3 billion (an extra $375 to $500 a year each for taxpayers earning between $75,000 and $100,000) and could dampen retail spending.

“The federal budget does little to change the weak state of household income growth,” said Mr Woolford. “We expect little movement in share prices for retail following the 2017 budget.”

On Tuesday, Citi economist Josh Williamson warned that retail was “verging on recession” after retail sales dipped 0.1 per cent in March, falling for the third month in four, taking year-on-year growth to just 2.1 per cent, the weakest growth in almost four years.

‘Accelerated depreciation’

Retailers such as JB Hi-Fi, Officeworks, Harvey Norman, Kogan.com and Bunnings stand to benefit this year from the government’s decision to extend accelerated depreciation on capital expenses worth up to $20,000. 

The so-called “instant asset write-off” was due to expire on June 30 but the government has extended the measure for another 12 months until June 20, 2018 to encourage small businesses to invest in plant and equipment.

“Elsewhere, the broader challenge is weak household income growth and a tapering off in wealth gains leading to weaker retail spending,” Mr Woolford said. “The Federal Budget has not fixed these retail woes.”

Macquarie Equities analysts agreed, saying the budget would do little to cheer consumers grappling with high household debt and low wages growth.

“At an aggregate level the 2017 budget appears to have a negligible immediate impact on discretionary expenditure, with most initiatives starting to take effect from July 1 2018,’ Macquarie Equities analysts said.

“On a longer-term basis the impact of the budget is slightly more negative towards the consumer with the increase in the Medicare levy from July 1 2019 and tightening of social assistance property related benefits from July 1 2018,” Macquarie said.

GST changes delayed

Retailers hoping for a boost in 2018 from the reduction in the GST-free threshold on goods bought online from overseas will have to wait another year.

The Government has postponed reducing the low-value threshold on imported online purchases for 12 months, until July 1, 2018, after e-commerce giants eBay, Alibaba and Amazon warned that the proposed regime was impossible to implement by July 1 this year.

Citi said the government expected the new regime to raise $70 million in the first year, suggesting that it would only relate to roughly $700 million or less than one-third of total spending through offshore online retail channels.

“The government’s estimates indicate expected challenges in collecting the GST,” Mr Woolford said.

Citi believes that only 20 per cent to 33 per cent of offshore online spending will eventually flow back to Australian retailers, which would lift discretionary retail sales by between $140 million and $231 million or 0.1 per cent to 0.2 per cent. 

‘Tax is a tax’

Australian Retailers Association executive director Russell Zimmerman said that overall the budget was a step in the right direction for reducing government debt and providing economic conditions conducive to reinvigorating growth in the retail sector. 

Mr Zimmerman said retailers welcomed some budget measures, such as increased infrastructure spending, but said the government had “missed the mark”  by focusing on additional taxation to fix the deficit as opposed to cutting spending. 

“A tax, is a tax, is a tax, however you dress it up,” Mr Zimmerman said. “The Medicare levy increase of 0.5 percent to fund the NDIS is just a tax hike in another form that will hit consumer pockets hard.” 

The ARA also fears the big banks will pass on the cost of a new $6.2 billion bank levy to customers, further dampening their propensity to spend. 

“Without adequate safeguards to protect customers from these forwarded costs, we are cautious that this levy could prove counter-productive for retail growth,” he said.