10 Dec Airo AV Announced The mystery of the missing tax refunds
In the budget, Frydenberg made clear what he — and Treasury and the Reserve Bank — believed would come of the tax offset.
“This tax relief will lift household incomes, ease cost of living pressures and boost spending at local businesses,” he said.
When the tax cuts were made law on July 4, the Treasurer, Scott Morrison and Finance Minister Mathias Cormann said the cuts would “ultimately boost household consumption, which will be good for the overall economy”.
By the end of October, $24.2 billion worth of refunds had gone into the bank accounts of working Australians. That was $5.4 billion or almost 30 per cent up on the same period last year.
But like a plane or ship going into the Bermuda Triangle, this huge amount of extra cash has seemingly disappeared.
When the tax refunds were put in place, plenty of economists (and politicians) likened them to Kevin Rudd’s stimulus cheques of late 2008 and 2009.
There was an expectation that Australians would treat the big boost to their annual tax refund as some sort of bonus, to be shared with retailers around the country.
But that ignored the history of tax refunds.
Between July and October this year, $24.2 billion had been refunded. Last year, over the same period, the total was $18.8 billion. The year before that it was $18.4 billion. Back in 2013, Australian taxpayers had been returned $17.2 billion in this four-month window.
That’s a lot of extra cash going into the pockets of people.
But if you happen to look at the raw, non-seasonally adjusted retail trade figures pumped out by the Australian Bureau of Statistics, you can’t actually see this money going out to the nation’s retailers.
For instance, between July and October this year total raw retail spending increased by $1.5 billion or 5.8 per cent.
Last year, it increased by $1.5 billion.
In 2017, there was a $1.1 billion (or 4.4 per cent) increase. The year before that it was 5.7 per cent. Back in 2013, it lifted by 6.4 per cent or $1.4 billion.
In other words, refunds are no stimulus. They are barely spent and are nothing to write home about.
In October this year, a little over $28.1 billion went through retailers, a $735 million lift on October last year.
But the lift between October 2017 and 2018 was more than $1 billion and that occurred without tax cuts.
As several accountants have mentioned, the annual tax refund is treated much differently by Australians than the Rudd stimulus cheques.
People earmark their refund plan months ahead, usually to pay down some debts that have built up through the year or to cover those big bills that come through the mail early in the new financial year.
The Reserve Bank, like Treasury, was expecting much more of the refunds to be spent. It has mentioned the “recent tax cuts” as one reason economic growth will pick up on several occasions.
Except last week’s national accounts showed growth slowing through this period of tax cuts. Households have reduced spending to global financial crisis-like rates (and are actually reducing their non-discretionary spending).
Now all of this conservative household behaviour may come to pass. Households might be saving to lift their spending in the Black Friday sales and through the Christmas period. Debts may be shrinking, giving the same households important financial breathing space.
The combination of record low interest rates, record high participation in the jobs market and increasing house values could be enough to offset the record amount of debt and stagnant wages hitting most households.
But just like the Loch Ness monster, this mystery could sail on unanswered.
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.