Not a game changer: Retailers concerned customers won’t spend new tax cut

Small business owners say the government’s income tax cut will put money back into the pockets of shoppers but are sceptical the cash injection will turnaround a tough first half of the year.

After a week of bluster and posturing in Canberra, the government’s income tax cuts passed the Parliament late last week, securing a $1,080 in savings for some 4.5 million Australians.

The cuts, which the tax office will implement on 2018-19 tax returns, were sold by Prime Minister Scott Morrison as a stimulus for Australia’s sputtering economy, although low-income taxpayers will save less than those on higher wages.

It comes at a crucial time for SMEs in the retail sector and beyond as the Australian economy struggles with sluggish inflation, low real wage growth and rising underemployment.

Retailers have been feeling the pain for some time, evident in a steady string of company collapses, lacklustre spending in key categories like fashion and patchy consumer confidence in recent years.

Now in a sector-specific recession according to National Australia Bank economists, retail is often cited as a canary to coal mine for broader economic health.

But while consumers can expect a boost to their hip pockets in the coming months, business owners SmartCompany asked said they weren’t waiting with bated breath.

Judith Treanor, founder of online homewares retailer Temples & Markets, says she doubts the cut will have a “particularly tangible effect” on retail spending.

“This is hardly a stimulus package to get consumers shopping, more a small bit of assistance to help with high costs of living,” she says.

While retail spending increased by 0.1 in May, returning to growth after a slow start to the year, sector-wide spending is still on the soft side, falling short of economist expectations.

It is hoped the tax cut will result in a bump for July spending, due to be handed down in August, with executives at larger retail chains preparing for an influx of customers looking to spend their $1,080 in one go.

Dean Salakas, chief executive of retailer The Party People, says more money in the hands of shoppers is good news for any retailer.

“There will be people who spend it,” Salakas says.

Salakas says there’s “no black and white answer” on how much retailers can expect to benefit, but he doesn’t expect the tax cut to put a dent in the effects of broader trends like the rise of online shopping.

“Maybe there will be a bit more demand, but I don’t think it changes what’s happening,” he says.

Beyond the retail sector, James Eling, founder of Marketing4Restauraunts, says he’s not expecting current or prospective clients to benefit enough for him to experience any secondary stimulus.

“We don’t expect the tax cuts to make much of a difference, if at all,” he says.

Business advisor George Morice says his clients aren’t preparing for any big uplift in revenue either.

“They think people will squirrel it away as they are not sure about the future,” he says.

“They said customers seem scared to spend and instead want to build a safety net.”