Westpac’s latest consumer sentiment survey highlights that a significant portion of the anticipated tax cut cash will likely be channeled into savings. According to findings, about 80% of the expected windfall from July’s tax cut will reinforce personal savings rather than fuel consumer spending sprees.

Matthew Hassan, Westpac's senior economist, articulated the sentiments of survey respondents, noting, "30% of those expecting tax cuts plan to save the entirety of it, while an additional 50% will save at least half. We predict that households aim to save approximately 80% of the Stage 3 tax cuts."

This perspective underscores the increased focus on financial prudence amid continuous cost-of-living increases over the past two years. Hassan further elaborated, "These findings suggest that consumers will leverage the tax relief to repair their finances and build savings buffers rather than indulge in spending."

If the conservative saving outlook materializes, only $4.7 billion of the proposed $23.3 billion in tax relief will be spent, resulting in a modest 0.35 percentage point boost in spending. A less conservative scenario, saving half of the cuts, still amplifies the savings significantly but boosts spending marginally higher at 0.9 percentage points.

Echoing Westpac's findings, a May survey by the National Australia Bank (NAB) observed a similar tendency amongst Australians to save their tax savings or use it to address rising living costs instead of splurging on non-essentials. NAB's survey indicated that 36% more likely plan to accumulate their additional funds.

The trend transcends demographic distinctions, with over half of Gen Z Australians intending to save, alongside 49% of individuals earning between $100,000 and $150,000 preferring frugality, according to NAB's data. Almost 29% of respondents plan to use their tax boost to counter higher living expenses, while 22% intend to reduce their debt load.

The survey’s findings align with broader economic sentiment in Australia. As of July 1, varied income brackets will see an annual gain ranging from $350 to $4500 due to the tax cut package, presenting an opportunity for greater financial security.

However, Westpac's index paints a picture of persistent pessimism amongst Australian consumers. The Index marginally receded by 0.3% in May, dropping from April's 82.4. Despite a slight improvement in expectations, current conditions and anxieties over prolonged high inflation and potential interest rate hikes have cast a shadow.

Highlighting the cautious consumer outlook, Hassan remarked, "The ongoing sentiment and responses to additional prompts about the July tax cuts signify ongoing consumer spending restraint as we progress into the latter half of the year."