Extra cash will start flowing into Australians' pockets within days but while retailers hope they spend up big, a new report says confidence in the economy is dropping.
Australian Retailers Association executive director Russell Zimmerman says his sector has "done it very tough" over the past 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".
Recent cuts to the official interest rate will also give mortgage holders a little more cash to splash.
"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.
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."
Australian Council of Trade Unions secretary Sally McManus said stagnant wages, rising household costs and slashed penalty rates were taking their toll.
"The wages crisis has crushed consumer confidence and people will not start to spend again until they are secure in their jobs and their wages are growing," she said.
Ms McManus said consumers didn't believe the Morrison government would do anything about the steadily rising costs of living.
