Tax cuts are having an impact even before they've been delivered

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  • Australian consumer confidence hit the highest level since early February last week.
  • ANZ Bank says the prospect of income tax cuts was one supporting factor.
  • Sentiment towards family finances and the economy is now above historic norms.

Australian consumer confidence has risen to the highest level in 13 weeks, helped by news that income tax cuts will be delivered in tonight’s federal budget.

The ANZ-Roy Morgan Australian consumer confidence index rose by 0.3% to 119.6 last week, leaving it at the highest level since early February.

Source: ANZ Bank

The result was helped by an unusually large increase in sentiment as to whether now is a good time to buy a major household item, hinting that any tax relief for households in the budget could result in stronger spending levels in the period ahead.

It surged by 5% to 141.9, leaving it at the highest level since mid-January.

“Confidence sits [above the series long-run average of 113.0], supported by robust labour market performance, accommodative monetary policy and expectations of personal income tax cuts,” said David Plank, head of Australian Economics at ANZ Bank.

However, despite renewed optimism towards spending, that was not enough to support sentiment towards family finances and near-term expectations for the economy which declined modestly after strength in prior weeks.

“Households’ views toward current financial conditions eased 0.8% last week, following a 1.7% rise previously. Views towards future conditions declined 3.2%, after three straight weekly gains,” Plank said.

“Consumers were a touch less optimistic about year-ahead economic conditions, with sentiment dipping 0.9% last week, ending the streak of five consecutive weekly gains.”

However, views towards the economy over the longer term improved slightly with sentiment looking five years ahead increasing 1.2%.

As seen in the chart below, despite the mixed weekly performance, overall confidence towards the economy and finances have moved higher ahead of the federal budget, leaving sentiment above historic averages.

Source: ANZ Bank

In the past five years, Plank notes confidence levels have fallen by 1.2% on average in the week following the budget’s release.

Whether that remains the case in 2018, especially with this budget likely to be more fiscally stimulatory than those over that period, won’t be known until the ANZ-Roy Morgan report is released on May 15.

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