Retail sales beware: Annual change in GST receipts turn negative

Finance.gov.au released components of taxation revenue for the month of October 2019.

Combining these figures into a time series dating back to 2014, we get to look at the 12 months annual changes in various Government tax receipts.

Annual Goods and Services tax (GST) to the end of October 2019 came in at $65.9 Billion, 1.3% lower (red line below) than 12 months previous.

According to the Australian Bureau of Statistics (ABS), Retail Trade accounts for approximately 50% of the GST receipts. The ABS say that, overall, retail trade is growing at 2.8% as at the end of September. The food components of retail trade are growing at around 3.5% and clothing/footwear/accessories is growing at 3.9%. The household goods and department store components currently have close to zero growth.

If GST receipts have contracted by 1.3% but retail sales have grown at 2.8%, it would indicate the growth in other components is contracting. An example of one component is the luxury car tax (green line below), which has an annual decline of 6.50%.

Separately, Income tax revenue (Individuals, Company and Superannuation) is still growing at 5% per annum. This indicates that with per capita real income stagnant for several years, the Government is enjoying the benefits of bracket creep, thus creating a drag on the economy.

Whilst income taxation revenue, even with 5% growth, appears to be in a downtrend, this has been affected by the one-off $4 Billion tax cuts in July. As this is a non-recurring tax cut, the Income tax growth rate should be 1.6% higher.

The income tax growth is giving the Government the surplus they so desperately desire, but with real per capita incomes stagnant, by definition, the economy must contract. The paradox of thrift is that if individuals increase their savings (which is recognized as a good thing and encouraged) the whole economy will contract (a bad thing).

The RBA, in pursuit of their 2% to 3% inflation target, full employment (4.4%) and wages growth will need to drop interest rates in the face of a Government imposing a budget surplus. Early next year the RBA should be considering what form of Quantitative easing they undertake. The RBA needs to get long term rates down, so their options will include buying long dated Government bonds, extending re-purchase agreements from the short term out to 12months/36months, and buying Mortgage backed securities to give a direct funding impetus to home lending.

Look for a long grind sideways, with continued asset price inflation as a substitute of any meaningful economic/taxation reform.