TAX NEWS - JUNE 2010

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Australia Tax: Markets, super tax worry consumers

Jittery financial markets and uncertainty surrounding the proposed mining super tax has hit consumer sentiment, falling for a second consecutive month.

The Westpac-Melbourne Institute consumer sentiment fell by 5.7 per cent in June, despite the Reserve Bank leaving the cash rate unchanged in June.

The index had dropped 7.0 per cent in May after the central bank raised the rate for a third consecutive month.

The cumulative 12.3 per cent fall during May-June was the largest two-monthly fall since March 2008.

"(The index fall) seems to reflect a mixture of concerns about deteriorating conditions abroad, financial market turmoil and uncertainty around the government's proposed resource super profits tax," Westpac chief economist Bill Evans said releasing the monthly data on Wednesday.

Budget and tax headed the most recalled news item at 55 per cent, the highest proportion for both since the introduction of the GST.

"The perception was negative with a clear majority of those recalling the issue saying they viewed it as unfavourable," Mr Evans said.

Other categories that registered a high recall were economic conditions (48 per cent), interest rates (34 per cent) and international conditions (32 per cent).

"The score for international conditions was the highest since the Asian financial crisis in 1997/98, even higher that scores registered during the recent global financial crisis," he said.

A 6.2 per cent dive in the sharemarket and a 7.5 per cent slump in the value of Australian dollar against the greenback in the past month would explain concerns over the global economy.

The index component assessing respondents' personal finances compared to a year ago dropped 17.7 per cent, the biggest fall since petrol prices soared in 2005 in the wake of Hurricane Katrina in 2005.

Mr Evans expects the Reserve Bank to hold rates steady again in July, although sees the risk of another move in August following release of the consumer price index in late July.

"However, this survey does highlight the impact of financial market turmoil on the confidence of households," he said.

"If this turmoil persists over the next two months, the board will have a very difficult decision if the new inflation data points to further rising inflation pressures."
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