Westpac consumer confidence index soars on federal budget boost

For the first time since 2010 most Aussies say the budget will improve their finances, putting a rocket under Westpac’s consumer index.

Australia’s consumer confidence surged in response to the federal budget, according to Westpac.

The Westpac-Melbourne Institute Index of Consumer Sentiment surged by 11.9 per cent to a three-month high of 105 points in October, from 98 points in September.

The survey found a net balance of 9.5 per cent respondents said the budget would “improve their finances” -- the first positive outcome since Westpac started asking about the budget in 2010.

“This is an extraordinary result,” Westpac chief economist Bill Evans said.

“The Index has now lifted by 32 per cent over the last two months to the highest level since July 2018. The Index is now 10 per cent above the average level in the six months prior to the pandemic.”

Mr Evans attributed this to the response to Australia’s world-leading fiscal stimulus outlined in the federal budget, ongoing success across the nation in containing the COVID-19 outbreak, and expectations that the Reserve Bank board will further cut interest rates after its next meeting on November 3.

Financial markets have also reacted positively to these developments, with Australian dollar hitting a three-week high of US72.43c and the S&P/ASX 200 share index reaching a seven-month high of 6214.7 following the October RBA meeting and the federal budget last Tuesday.

Asked if the budget would “improve their finances”, the majority of respondents surveyed by Westpac said “yes”.

“Since 2010 we have conducted a post budget question in the survey to assess the response of households to the budget announcement,” Mr Evans said.

“Over that period, the net balance of respondents who assessed that the budget would ‘improve their finances’ was minus 29 per cent, a clear majority expecting measures to adversely affect their finances. We have never seen a budget response that showed a net positive balance – until now.”

Notably, confidence lifted in all states, and the success NSW has been having in remaining “open” despite some daily evidence of new cases has “really buoyed its citizens”, Mr Evans said.

Confidence in New South Wales surged by 17.5 per cent compared to more subdued responses in Queensland, WA and SA, which saw respective gains of 7.1 per cent, 2.4 per cent and 9.3 per cent respectively.

“Another welcome surprise was a solid lift of 13.7 per cent in Victoria to a level now comparable with most states except NSW,” Mr Evans added.

“Clearly the citizens of Victoria are eagerly anticipating an imminent reopening in Melbourne.

Any significant delay is likely to see confidence in Victoria held back.”

While all components of the Index were higher in October, the most striking improvements were around the outlook for the economy, with the “economy, next 12 months” sub-index increased 24 per cent while the “economy, next five years” sub-index rose 14 per cent.

Despite the lift in the 12 month outlook, this component is still only back near its August 2019 level.

But the five year outlook sub-index surged to its highest level since August 2010, which was “a much more encouraging signal,” according to Mr Evans.

“Respondents are likely to be seeing the budget as setting a foundation for a sustained lift in Australia’s economic fortunes,” he said.