Tax cuts leave retailers cold

Tax cuts were an April Fool's joke for retailers - sales went down, not up.

Statistics New Zealand figures showed core retail sales, excluding vehicles and fuel, dipped 0.1 per cent in April despite the tax cuts.

The benefit from tax cuts, falling mortgage interest rates in the past year, rising migration, and a pick-up in housing sales in recent weeks have come to less than nought.

People are being more cautious, saving their tax cuts or paying down debt because of rising unemployment, economists said.

Shoppers are still spending in department stores, and buying takeaways and coffee, but spending less at bars and clubs and on big ticket goods such as furniture.

Overall spending was up 0.5 per cent because of a big bounce up in motor vehicle related sales, but they can move up and down sharply each month. This one-month blip in the car industry came after six months of falling sales.

Some economists had expected a 1 per cent lift in core sales figures because of tax cuts from the start of April. But the positives had been overwhelmed by the negatives of rising unemployment and lower wage growth, economists said. Some still think consumer spending may be near the bottom of the trough and starting a "modest recovery". That reflected robust consumer confidence, plunging inflation, some eventual boost from tax cuts and rising migration, Bank of New Zealand said.

More recent electronic transaction figures for May have core retail sales lifting. But credit and debit card figures do not give the total sales picture because they do not pick up cash or hire purchase sales.

But Deutsche Bank said the electronic transaction figures for May suggested a solid rise in total retail sales would come through for that month.

"In broad terms we think consumer spending is now beginning a modest recovery," it said.

As borrowers roll off high fixed term mortgage rates on to lower rates, between $1.5 billion and $2b extra will flow into their pockets in a year more than the value of tax cuts.

Even with that, Deutsche Bank said it would be surprised to see a strong rebound in consumer spending.

Car-related sales were up 3.5 per cent or $18 million in April, according to Statistics New Zealand. That is still down about 28 per cent on sales in mid 2007.

The trend in total retail sales has been falling or flat since the start of last year. As well as rising unemployment, which is expected to get worse, retail sales may be suffering because people are trying to cut back debt, rather than spend their tax cuts or the money gained from lower mortgage rates.

SALES UP Department stores: 4 per cent ($12 million) Motor vehicle related: 3.5 per cent ($18m) Takeaway food: 4.9 per cent ($5m) Cafes and restaurants: 1.7 per cent ($5m)

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