economic agenda. Wheeling and dealing with the minor parties in the Senate has enabled the Federal Government to pass some key legislation, but at a cost in terms of trade-offs that have further compromised budget repair and economic reforms. The federal budget has marginally improved the Prime Minister’s approval rating, according to the Fairfax-Ipsos poll, but has failed to provide any significant boost in the two party preferred voting intention. A contest between two ugly blokes But never mind the politicians, this federal budget is unlikely to do anything to stimulate the economy and revive the fortunes of the retail sector. Stalked by the ghost of the politically disastrous Abbott-Hockey budget of 2014, federal treasurer, Scott Morrison brought down a high risk budget that is more about politics than economic management. A budget with yet another yawning deficit that someone sometime in the future will have to repay and a budget premised on dubious assumptions on revenue, employment levels, spending and economic growth. On top of that, we are now facing a contest between the two ugly blokes, the government and the banks, for the affection of the public in what is likely to be a destabilising drawn-out battle with no winners. The mining tax had an element of logic to it in that it sought to provide a greater return to all Australians on the sale of irreplaceable natural resources. The banking tax is premised on the fact banks are a protected species within the Australian economy. They are effectively shielded from foreign competitors and guaranteed by government against failure. Better public policy would be to expose the banks to more competition to the benefit of the businesses and consumers that rely on them than to apply a super profits tax. Many more Australians are directly invested in the banks than in the miners making the Federal Government’s $6.2 billion tax on the Commonwealth, National, Westpac, ANZ and Macquarie banks a potentially harder sell than Rudd faced. The Federal Government decision will inevitably accelerate job cuts in the banks, in all likelihood chasten lending that is crucial to the growth prospects of the economy and increase costs for customers notwithstanding that Treasurer Morrison claims it won’t. The Government is keen to sell its budget as a ‘fairness budget’, addressing some of the nasties of the 2014 budget that cost both Prime Minister Abbott and Treasurer Hockey their jobs. It provides welcome investment in infrastructure, increased spending in education, health and disability support and tinkering with the housing affordability issue. However, the claim that the federal budget will be back in surplus within four years is absurd, despite $20.8 billion in new tax measures and the unemployment rate continues to be understated. Consumers under stress The budget by itself will not restore the political fortunes of the Coalition Government which, despite being in its second term, lurches from one policy position to another, creating uncertainty and denting both business and consumer confidence. The latest ANZ/Roy Morgan consumer confidence index indicates that confidence has fallen 1.4 per cent in the past year to levels that hark back to Labor’s mining tax debacle of 2014. In large measure, the confidence plunge can be attributed to unemployment and under-employment levels, low wage growth, soaring utility bills and health costs, mortgage stress, uncertainty about superannuation and a lack of faith in government. Retail sales growth is dawdling because many consumers are struggling to pay their bills and, statistics indicate, are increasing their household debt levels in the hope that the economy and their prospects will turn the corner. According to an analysis by Digital Finance Analytics, 22 per cent of households with a mortgage are under stress and that figure would engulf one third of all borrowers if interest rates climbed by three per cent. Other firms monitoring household debt levels suggest that one third of borrowers are already struggling to keep up with their repayments and vulnerable to any increase in interest rates. On paper, household debts are covered by the same rising property values that are shutting first home buyers out of the market, but the prospect of higher interest rates or a fall in house values has many consumers worried. Confusion and uncertainty are spending killers. Political indecision and a lack of a clear policy agenda is also a spending killer. “Verging on recession” Australia was fortunate to come through the global financial crisis largely unscathed, but the political upheaval ever since has adversely impacted on confidence levels for business and consumers. Despite the stimulation factor of new retail players to the Australian market, in part because of the stable economic performance through the GFC and its aftermath, there has been modest growth in retail sales over the past decade. Conventional market dynamics would suggest that the influx of new international retailers would create excitement and motivate spending by consumers with the new entrants, but also with retailers located around them and retailers countering them with marketing initiatives. Yet sales for the current financial year are sobering after an initial uplift in October, leading Citibank economist, Josh Williamson, to suggest the retail industry was “verging on recession”. Williamson was arguably not talking of a recession in the usual sense, but rather emphasising the point that sales in recent months have been flat and show little sign of improvement. December sales figures were down 0.1 per cent, according to the Australian Bureau of Statistics, while January sales were up 0.4 per cent in seasonally adjusted terms. Sales for February and March respectively fell 0.2 per cent and 0.1 per cent, prompting Williamson’s observation. The decline in sales for three of the past four months is the worst result since the period from July to November 2012. While year on year sales are up 2.1 per cent, the trend in recent months suggests the annual figure is also likely to decline for the 2017 financial year. The sales figures are impacted by price deflation in some categories, including groceries, and the closure of some significant chains such as Masters Home Improvement. The extreme weather conditions in Queensland and the relatively mild summer across the nation and even the timing of Easter may have tempered sales growth for the third quarter, however, the retail sales figures also confirm that consumers are cautious about retail spending. Economists had been relatively optimistic about growth in calendar 2017, but are now acknowledging that low wages growth, unemployment, under employment and household debt are putting a strain on consumer spending. Russell Zimmerman, executive director at the Australian Retailers Association (ARA), said the disappointing statistics for March were a symptom of escalating operating costs and systemic economic pressures faced by Australia’s retail industry. “The generally weak trade figures across the board appear to be caused by myriad of factors including low consumer confidence, political uncertainty, international competition and the effects of housing affordability on hip pockets,” Zimmerman said. “These broader economic issues, combined with a number of challenges within the retail operating environment, are serving to stagnate rather than stimulate growth in the sector.” Zimmerman would not concede that a recession in retail sales was looming, despite the “backwards growth trends across many states and categories”. Ahead of the federal budget, Zimmerman said the ARA was hoping for a “practical package to preserve the viability of the retail industry”. Zimmerman acknowledged the federal budget could bring some relief for retailers through reducing government debt, though the nation faced the “undesirable cost of increasing taxes on Australian individuals and businesses”. While expressing concern about the strategy to return to a surplus by imposing additional taxes instead of cutting spending, Zimmerman was not entirely opposed to the levy on the major banks, provided there are adequate safeguards to protect customers against having the tax passed on to them. “We are cautious that this levy could prove counter-productive for retail growth,” Zimmerman said. The ARA was happy that the federal budget included the introduction of the GST low value goods but expressed disappointment at the delay to the implementation of the measure. The measure is currently subject to a rearguard campaign by online retailers, who claim it will cost the government more than it will collect and will result in Australian consumers losing access to some products altogether, as offshore vendors refuse to fulfil local purchase orders that attract the GST. The Federal Government is also facing a public campaign against the reduction in penalty rates, a decision of the Fair Work Commission following a reference by the former Labor Government. Turnbull and Morrison do not have a great deal of clear air to sell their budget and in all likelihood, face a tough battle with the banks to convince voters “who is the fairest of them all”. It remains to be seen whether or not the budget measures boost consumer confidence and get them opening their wallets again.