The federal budget's Medicare levy hike and the likelihood customers will bear the brunt of a new levy on the nation's big five banks are expected to further dent retail spending.
Executive director of the Australian Retailers Association, Russell Zimmerman, says he expects the $6.2 billion levy on Commonwealth Bank, NAB, ANZ, Westpac and Macquarie Group will likely be passed on to customers through higher fees or charges.
"It is of concern the Medicare levy increase will also take away spending power from consumers," he said.
The latest official retail trade figures shows there's already a slowdown in spending, Mr Zimmerman said.
Citigroup analysts warned on Tuesday that the retail sector could be on the verge of a recession after retail spending surprisingly fell for a second straight month.
Seasonally adjusted retail spending fell 0.1 per cent to $25.6 billion in March, when economists had expected a rise of 0.3 per cent.
Citigroup said retail spending had declined in three out of the past four months, the sector's worst performance since the second half of 2012.
"Retail sales numbers are now just 2.1 per cent higher than the same level of last year. This is the slowest growth rate in almost four years," they said.
Mr Zimmerman said there were also pluses for retailers in the budget, including increased infrastructure spending and benefits for small business owners.
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