The Federal Budget for FY27e is positioned as reform and addressing inter-generational equity for taxpayers. However, the implications over the next 1-2 years on consumers and the retail sector is mild. We estimate less than 0.2% boost to household income over FY27e to FY29e, which pales into insignificance compared with the 1.8% boost to households from government spending in FY25. The changes to tax deductions on investment properties will take many years to shift housing churn and house prices given existing investors are grandfathered. The path of retail sales for the next three years will be more dependent on the interest rate outlook and employment growth. We expect a slowdown in retail sales to be most evident in the July-December 2026 period as income growth slows.

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.