Payroll tax hike will curtail consumption growth

The expiry of the payroll tax cut could easily bring the acceleration in consumption growth over the second half of last year to a juddering halt this January. Some of the blow to real incomes will be offset by lower gasoline prices and the annual cost-of-living adjustment to social security payments. Nevertheless, the expiry of the payroll tax cut may still reduce annual consumption growth by around 0.7 percentage points this year, with most of the hit coming in the current quarter.