Concerns about the federal budget are back and weighing on consumer confidence. Source: AAP

CONCERNS about the federal budget are rearing their ugly head again and making Aussie consumers nervous.

THE Westpac Melbourne Institute Index of Consumer Sentiment fell by 4.5 per cent in September, and is 5.8 per cent below its pre-budget levels.

The index has stayed below 100 points for the past six months, meaning there are more pessimists about the economy than optimists. Westpac chief economist Bill Evans said the outcome was a surprise after the recovery in the past three months. “For September, budget and taxation continues to dominate,” he said.

“Households are a little more comfortable with the budget but it continues to dominate their thinking and they remain on edge,” he said. The survey also showed a sharp deterioration in respondents’ assessments of the economic outlook. “Concerns around the medium-term outlook are likely to make households more cautious,” Mr Evans said. Commonwealth Bank senior economist John Peters said news about the negotiations to get the budget through the Senate would have renewed concerns about its impact.

“It is now over four months since the budget, with no end yet in sight to the Senate standoff involving key budget measures totalling nearly $40 billion,” he said.

“There remains the risk, that prolonged brittle consumer confidence may dampen household spending and borrowing appetite, and complicate the economy’s current metamorphosis from mining sector driven growth to non-mining sector driven growth.”

CitiGroup’s Paul Brennan and Josh Williamson believe the fall in confidence is linked to the return of parliament. “We don’t believe it was a fluke that sentiment started to improve while federal parliament was in winter recess but sank when politicians returned to Canberra and budget news featured more prominently in the media,” Citigroup said.

The shock rise in the July unemployment rate to 6.4 per cent from six per cent would have also been a factor, Citigroup said. “Surveyed households cited employment as the most unfavourable domestic news heard in the month,” they said.

“We suspect this was largely responsible for fall in the outlook for economic conditions and a pick-up in the wisest place for savings being defensive vehicles like bank accounts.

” The proportion of respondents saying that the budget was a significant issue for them in September was the second highest since the Westpac survey was started in the mid 1970s. The highest reading was in June this year, the month after the government announced tough spending cuts in its budget.

source:theaustralian.com.au