Stage 3 tax cuts largely being saved not spent: Westpac
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The news: An analysis by Westpac has found no evidence that the amended stage 3 tax cuts have translated into a rise in spending. In fact, households across most cohorts seem to have been saving the extra income where possible.
The numbers: On average, each worker received $220 in extra income in July while other drivers, such as subsidies, contributed to another $860 back into bank accounts. Westpac estimates 70% of this total extra income made its way into savings.
The context: Household consumption is a major source of uncertainty for the inflation outlook and the Reserve Bank's interest rate settings. Some economists had raised concerns that the stage 3 tax cut changes, which were amended to give more to lower- and middle-income Australians who have a higher propensity to spend, would result in more spending particularly when combined with other subsidies and wage increases.
This is only one month's worth of data but it is a promising indicator that the changes may not drive up inflation. Both Treasury and the Reserve Bank have said they do not think the amended stage 3 tax cuts will materially affect the inflation outlook.
The amended stage 3 tax cuts were a key component of Treasurer Jim Chalmers' May budget.
What they said: "While there was a very noticeable boost to income in July, there was no significant spike in spending over and above the normal month-to-month volatility. However, there was a significant spike in savings inflows in July," Westpac economist Jameson Coombs said.
"In fact, in both seasonally adjusted and original terms, savings inflows in July were the largest since mid-to-late 2021," he said.
"Importantly, there was no clear evidence of an income related increase in spending in any age cohort, across income brackets or among those with or without a mortgage."
The source: Westpac analysis
