The Age reports: “Billions of dollars in tax cuts and infrastructure spending have failed to kickstart the economy – tipped to be growing at its slowest rate since the last recession.
Shoppers closed their wallets in July, pocketing cash or paying off debt, leaving retailers watching on as sales fell across the country.
Despite the cash injection, which Treasury and analysts had expected to deliver a much-needed boost to the retail sector, consumers instead shied away from the nation’s shopping centres.
This is a double-edged sword. Not only is the money not flowing back into the economy as a short-term stimulus, is also foregone revenue for the government to use as long-term stimulus and infrastructure spending.
Add to this the foregone revenue in two specific areas that the government campaigned strenuously to defend: Franking credits and negative gearing.
Like the tax cuts, these two policies are regressive in that they favour the more wealthy who tend to save and reinvest.
If the government is serious about stimulating the economy in the short term, namely the so-called “sugar hit” then the way to do it is to direct money to the sectors economy that are likely to spend the money as they get It: pensioners, the unemployed, people on low incomes.
There another, bad sign in the economy
Gross domestic product has been trending downwards for the last two decades
With interest rates at 1%, the Reserve Bank is running out of options. With government policies targeting the wrong groups, Treasurer Josh Frydenberg may also be running out of options.
AMP chief economist Shane Oliver has gone further, predicting an official interest rate of 0.5 per cent by Christmas. “The RBA is still waiting to see what sort of boost to growth the rate cuts of June and July and the federal government’s tax cuts for low- and middle-income earners provide,” he said. “However, while these will help avoid recession, we doubt that they will be enough to generate decent growth and the evidence from July is not that encouraging.”