The Federal Budget for FY26e provides some added support for households given tax cuts, healthcare cost reductions and energy bill relief. The total benefit amounts to $3.6 billion for FY26e on our estimates, a 0.2% boost to incomes. This pales into insignificance compared with the FY25e tax cuts that lifted income by 1.6%. While some retailers worry about an election year, the economic setting for retail looks good and retail spending is likely to strengthen slightly over the next 12 months.

The Australian Federal Budget is positive for retail given income tax cuts. However, there are very few other initiatives that shift the outlook for consumer spending. Power price relief helps, but it is at the margin. The tax cuts add 1.6% to household income in FY25e. However, evidence from past tax cuts shows it takes time for them to benefit spending. Treasury forecasts a 1% acceleration in consumer spending for FY25e compared with FY24e. We take the same view on retail spending and expect a 1% improvement in growth for FY25e, a modest upswing. We are near the low point of the retail cycle and tax cuts will help lift growth. Even so, sales growth is likely to be slower than cost growth.