Most will not be spent initially, only 25% to 30%. This is based on modelling past data and tracking surveys, conducted since 2003 by foreseechange, of how consumers allocate discretionary funds.
More will be used for debt repayment. When consumers repay debt, some may become more willing to spend subsequently. But very low income growth in Australia will limit the ability to spend.
Even more will be used for saving. Much of this is precautionary or for other long-term saving, such as retirement. Quite a lot will be saved by young adults towards the purchase of residential property.
One of the main purposes for saving is for a holiday, mostly overseas. Tax cuts put towards saving for a holiday will eventually be spent, but much of it will be spent overseas.
The overall impact on consumer spending may be just noticeable and may hold the economy up a little for the next 6 to 12 months. Beyond then, we will be back to weak consumer spending growth and a weak economy unless we have policies to significantly boost productivity.
The glass may appear to be more than half-full for a short time, but the content will soon be consumed.
Details are available at foreseechange.com.au.