Consumers less confident while poor, elderly fear GST rise

The poor and older people are expecting to be worse off after the Budget, when GST is expected to rise to 15 per cent, according to a bank survey.

Rising petrol prices, higher mortgage rates, falling house prices and worsening unemployment are also affecting consumer confidence, although it is still in positive territory.

The Westpac McDermott Miller Consumer Confidence Index fell slightly in the March 2010 quarter, to 114.7 from 116.9. An index number over 100 shows there are more optimists than pessimists.

Despite wavering confidence, a net 21 per cent of consumers still thought it was a good time to buy a big-ticket item such as a car or appliance because prices were down.

Confidence levels suggested a "steady, but unspectacular recovery" in consumer spending, of about 2.5 per cent better than inflation this year, Westpac said.

"Not much has gone the consumer's way in recent months. Interest rates and petrol prices are up, unemployment has worsened, and house prices are falling again," Westpac chief economist Brendan O'Donovan said.

"People are still optimistic about the recovery, but less so than last quarter."

The survey showed that overall, a third of people thought tax and benefit changes expected in the Budget would be good for them financially, and 34 per cent expected to be worse off.

The Budget is expected to confirm GST will rise to 15 per cent, personal tax rate cuts and higher national superannuation, as well as changes on property tax.

Wealthier people thought they would be better off after the Budget, but optimists only just outnumbered pessimists, by a net 2 per cent.

Poorer people were "decidedly pessimistic" about rising GST. The negatives outweighed positives by 18 percentage points, Westpac said.

"We will see what the reality is [in the Budget], but the perception is that they don't think compensation for higher GST will be sufficient," Mr O'Donovan said.

The Government has said the tax changes should balance out and leave poorer people no worse off.

Labour finance spokesman David Cunliffe said the survey showed the distrust of National's plans to raise GST, which would benefit high-income earners and offer "nothing" to middle and low-income earners.

People over 50 were much more pessimistic about tax changes than younger people, the Westpac survey showed.

The rise in GST would have the biggest impact on "oldies with lots of savings", which would no longer be worth as much, Mr O'Donovan said.

There was likely to be a rise in spending before GST increased, up about 10 per cent on big-ticket items in the next quarter, and then falling by 10 per cent after the GST rise came in, he said.

Consumers remained deeply pessimistic about their own financial situation. A net 22 per cent of respondents said they were worse off than a year ago, compared with 21 per cent last quarter.

The only part of the survey to show improvement was consumers' assessment of whether now was a good time to buy a major household item, with a net 21 per cent saying yes.

"The high exchange rate is about the only thing that worked in consumers' favour recently, by driving down prices of many goods, including cars and appliances," Mr O'Donovan said.

When spending did pick up, it would be most clear in the big-ticket items because those sectors had been hammered during the recession.

- © Fairfax NZ News