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Australia Consumer Confidence Falls Sharply In May

Brendon Thorne | Bloomberg | Getty Images

A measure of Australian consumer confidence fell sharply in May as households reacted negatively to the government's budget announcement, even after a cut in interest rates to a record low.

The poll of 1,200 people by the Melbourne Institute and Westpac Bank was conducted in the week the Labor government delayed a long-promised return to a budget surplus.

The government blamed a stubbornly high Australian dollar and lower commodity prices for a dramatic fall in revenues.

It also came after the Reserve Bank of Australia cut its cash rate by a quarter point to a record low 2.75 percent.

The report's index of consumer sentiment slid 7.0 percent in May, following a decrease of 5.1 percent in April and a rise of 2.0 percent in March.

(Read More: Was Australia's Central Bank Right to Cut Rates)

The index was now up a mere 2.4 percent on May last year and the reading of 97.6 meant pessimists outnumbered optimists.

"Absent any other major influences, we would have expected a solid boost to the Index following that rate cut," said Westpac chief economist Bill Evans.

(Read More: Why It May Be Time to Exit Australian Stocks)

"In this survey we added an additional question around respondents' assessments of the Budget and the results confirm our reasonable assumption that this weakness in confidence is being driven by a sharply negative response to the Budget."

Evans said the dissatisfaction expressed by consumers in the survey was not only due to concerns around some of the savings measures in the Budget, but also the sharp deterioration in the fiscal position, indicating renewed fears about the overall state of the economy.

Details of the survey showed respondents were less upbeat on the economic outlook. The index of expectations for the economy in the next 12 months dropped by 13.4 percent, and was up just 0.1 percent for the year. The measure for the economy over the next five years fell 6.9 percent in May.

(Read More: RBA Defends Rate Cut, Says Growth Still Sub-Par)

The index of family finances compared with a year ago fell 8.0 percent, while that for finances over the next 12 months shed 7.0 percent.

The index of whether it was a good time to buy a major household item edged down 1.3 percent.

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