Tax rebates boosted consumption for Australians

Taking The Pulse of the Nation

Informing Australian economic & social policy.

A Melbourne Institute & Roy Morgan partnership

Taking the Pulse of the Nation (TTPN) surveys the Australian population to capture their sentiments and behaviours related to current economic and social issues.

Since 2020, the Taking the Pulse of the Nation (TTPN) survey has collected compelling information on the changing behaviours and attitudes of Australians. Together, Melbourne Institute and Roy Morgan understand the value in capturing the voices of Australians on the issues that matter right now. We use this information to create expert analyses to directly inform social and economic policies for our Nation.

This survey data is available to the public upon request. Please contact us for more information and access.

Tax rebates boosted consumption for Australians

In 2022, tax refunds for Australians with taxable income below $126,000 were expected to be between $675 and $1500—a $420 increase from previous years. The Taking the Pulse of the Nation Survey recently asked Australians how they would spend their expected tax refunds. The survey results indicated that about $515 (48%) of the refund was spent on consumption, $318 (27%) on savings and investment, and $246 (22%) on paying existing debts. We also found that the response to tax refunds varied with income: those with annual taxable income below $32,000 consumed 50 percent more of their refunds than those with annual taxable income above $100,000.

Australians consume close to half of their tax refunds

In 2022, Australian tax filers were entitled to about $1,000 in tax refunds. Almost half of the tax refunds were spent within the 3 months following their receipt. This amounts to a half billion dollars put back in the economy per million tax filers (over 10 million people qualify for a refund). This is a relatively small portion of the $100 billion sales that typically occur over a 3-month period in the Australian economy. The spending effect on the economy induced by the refunds is likely to be small.

Propensity to consume tax refunds decreases sharply with income

Australians’ propensity to consume their tax refund varies sharply with taxable income (Figure 1 – see Melbourne Institute TTPN website portal). Those earning less than $32,000, and who could claim up to $850, reported consuming $534 (63%) of the refund. Those earning between $90,001 and $100,000, and who could claim up to $800, reported consuming only $306 (39%) of the refund. Similarly, those without taxable income responded that had they received a $5,000 transfer, they would have consumed half of it. Those with taxable incomes above $126,000, and therefore not eligible for a tax refund, responded that had they received a $5,000 transfer they would have consumed a quarter of it.

Australians seem to anticipate how they will react to policy changes

Of interest is whether tax filers’ anticipated consumption coincided with their actual behaviour after the tax refund was received. There is remarkable consistency in what tax filers say they would do with the refund and what they did with it. Policy makers and business might be able to anticipate policy effects by gathering richer data from consumers.

In 2022, the Commonwealth government increased tax refunds by $420 to reach an average of over $1,000 per tax filer. Roughly half of the rebate is estimated to be consumed in the three months after receipt of the refund. This amounts to a 4 percent increase in consumption over a 3-month period. Reaction to policy varies by income. Tax filers in the lowest bracket of taxable income devote a 50 percent larger share of their refund to consumption than those in the highest taxable income bracket that receives a refund. Transfers, of which tax refunds are an example, are a key fiscal policy instrument to stimulate demand. Its effectiveness depends on how much of it and how fast it is spent and by who. High-income individuals are not good targets because they save more than they spend.

Author: Professor Marco Castillo, at the Melbourne Institute: Applied Economic & Social Research, 24 November 2022.

Contact: melb-inst@unimelb.edu.au

About Taking the Pulse of the Nation:

*Beginning in April 2020, the Taking the Pulse of the Nation (TTPN) was conceptualised and implemented by a group of researchers at the Melbourne Institute: Applied Economic & Social Research.

In 2022, the Melbourne Institute and Roy Morgan formed a partnership to extend the running of the TTPN. Each wave includes a set of core questions, as well as additional questions that address current and emerging issues facing Australians.

The sample is stratified to reflect the Australian adult population in terms of age, gender, and location. The TTPN Survey uses a repeated cross-sectional design. This report is based on a total of 2,000 respondents from data collected in May and October 2022. If you are interested in adding questions to the survey or accessing the data, please contact us at: melb-inst@unimelb.edu.au.

To view all Melbourne Institute – Roy Morgan Taking The Pulse of the Nation Reports visit the TTPN website portal:  https://melbourneinstitute.unimelb.edu.au/data/taking-the-pulse-of-the-nation-2022.