Retailers optimistic but confidence dips

Australian retailers are hoping people will spend the tax cuts they receive in coming months in shops, but a new report shows consumer confidence has dipped.

Retailers are champing at the bit for long-awaited relief as tax cuts start putting extra cash in Australians' pockets within days.

But a new report has shown a troubling fall in confidence among would-be shoppers.

Australian Retailers Association executive director Russell Zimmerman says his sector has "done it very tough" over the last few years.

But he believes tax cuts that cleared federal parliament last week, giving low and middle-income earners an extra $1000 when they file their 2018/19 tax returns, are "great news".

So too are recent cuts to the official interest rate that give mortgage holders a little more cash to splash, he says.

"We're looking forward to the consumers actually spending their tax cuts," Mr Zimmerman told reporters in Melbourne on Wednesday.

Mr Zimmerman said year-on-year growth in the retail sector has been between two and 2.5 per cent in recent years, but that's set to pick up.

"We're expecting that to grow over the next 12 months. We're particularly bullish about the next six months."

Treasurer Josh Frydenberg is predicting a retail windfall.

"We've cut taxes and that will be good news for the retail sector across the country," he told reporters.

Despite the optimism, consumer sentiment has fallen to a two-year low according to the latest Westpac-Melbourne Institute index.

The index fell by 4.1 per cent between July and June, from 100.7 to 96.5.

Westpac senior economist Matthew Hassan said the dip is "troubling", given the tax cuts, RBA rate cuts, and stabilisation in the Sydney and Melbourne housing markets should have supported confidence.

There was even improvement in the state of the trade war between the United States and China, he said.

"The main driver continues to be deepening concerns about the outlook for the Australian economy and prospects for family finances," Mr Hassan said.

"Deteriorating expectations for the economy outweighed any near-term support from the prospect of lower interest rates and tax relief."

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