The Federal Chamber of Automotive Industries on Wednesday reported new car sales in October were 9.1 per cent on the same period last year. It was the worst October for sales since 2010.
Westpac chief economist Bill Evans said it was clear from the most recent retail trade figures, which showed the actual volume of goods falling at the fastest rate since the 1990-91 recession, that the economy needed government assistance.
He said the economy would not grow fast enough just on the back of lower interest rates, arguing fiscal policy had to deliver a boost to consumers and businesses now.
Mr Evans said the government could maintain its budget surplus by phasing-in the second tranche of tax cuts over the next two years in a move that would inject around $7 billion a year into the economy.
“The second stage of tax cuts which the government has legislated to begin in July 2022 should be brought forward,” he said.
“That decision would not compromise the structural validity of the cuts but would recognise that the Australian economy is in need of a boost to demand, from fiscal policy, much sooner than 2022.”
Commonwealth Bank senior economist Gareth Aird said the government should go even further, pulling forward both the second and third tranches of tax cuts.
The third tranche, legislated to start on July 1, 2024, will see the 32.5 per cent tax cut cut to 30 per cent, the 37 per cent rate abolished and the threshold for the 45 per cent rate lifted to $200,000.
Mr Aird said interest rate cuts on their own would not be enough to drive unemployment down to 4.5 per cent which the Reserve Bank believes is necessary to lift wages’ growth.
He said the budget was being brought back into surplus by a sharp lift in the proportion of household income paid to the government as tax, hurting ordinary consumers and the economy.
“At present, the stance of fiscal policy adopted in the federal budget is contractionary. Growth in taxation is greater than growth in expenditure which is why the deficit has shrunk and the budget is now essentially balanced,” he said.
“Shrinking the Commonwealth budget in this manner in pursuit of a surplus effectively sucks money out of the economy.”
The calls to bring forward the government’s tax cuts mirror demands made by the Labor Party, with shadow treasurer Jim Chalmers saying the second tranche of tax relief would help a struggling economy.
A survey of small and medium-sized businesses by debt recovery firm Prushka points to the economic issues facing that sector.
Over the past six months there has been a 15 per cent drop in the number of firms expecting growth in the coming year. Almost half of businesses surveyed said the state of the economy was having a negative impact on their operation.
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.