Federal Budget leaves consumers wary

Surveys have shown that consumers are feeling a little pessimistic following last week’s budget. Many consumers are already planning to cut their levels of spending, after 63% of respondents told financial products website Mozo that the budget would leave them worse off, according to The Sydney Morning Herald.

Upon last week’s release of the federal budget – which forecast an $18 billion deficit for the 2013-14 year – one of the key changes made was to the Medicare levy, which will be increased by 0.5 percentage points to fund disability care. Meanwhile, the baby bonus that has provided new parents with $5,000 in the past will be scrapped as of March next year.

Over the years, the baby bonus has often been used to purchase new television sets or other various electrical goods. As such, the removal of the bonus will likely affect retailers including JB Hi-Fi (ASX: JBH) and Harvey Norman  (ASX: HVN) – both of which are already enduring difficult conditions in the electrical goods sector. Furthermore, 55% of participants in Mozo’s survey have expressed concerns that they would be $300 worse off per year – further impacting any intentions to spend.

After downgrading its full-year profit guidance to be $13.5 billion to $15.5 billion, Fantastic Holdings (ASX: FAN) – the owner of brands such as Fantastic Furniture and Dare Gallery – may also face further difficult times ahead. Despite interest rates being cut to a record low of 2.75%, the retail environment remains uncertain, and as consumers face the reality of having less disposable income, confidence to spend will decrease.

Further results showed that consumers are also concerned about the 15% tax being introduced on superannuation earnings of more than $100,000 annually as of July next year, whilst only 2% of consumers were concerned about a tax hike on cigarettes.

Foolish takeaway

The budget has left many consumers feeling uneasy about their savings and, as such, will result in many becoming more selective about how they spend their money. This comes as another blow for retailers, who are still recovering their profit margins.

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