Australia’s consumer confidence tumbled in May after the Reserve Bank unexpectedly raised interest rates and the government handed down a budget that households found “mildly disappointing.”

Consumer sentiment dropped 7.9% to 79 points, a Westpac Banking Corp. survey showed Tuesday. A strict interpretation would attribute about 60% of the May fall to the federal budget and the remaining 40% to the rate decision and other factors, according to Westpac Chief Economist Bill Evans.

“That is probably being too harsh on the Budget,” Evans said. “Some consumers may also have had unrealistic expectations going into Budget 2023 – especially around the scope to deliver cost-of-living relief without adding to the task of reining in high inflation.”

The survey, which was conducted May 8-11 spanned the handing down of Australia’s first budget surplus in 15 years. Yet in restraining spending to try to tamp down inflation, the budget also faced criticism for failing to tackle key challenges like a housing shortage.

For 2023, 15.5% of those surveyed after the budget expected it to improve their finances and 27% expected to be worse off, Evans said.

The tight budget followed the RBA a week earlier unexpectedly raising its key rate to 3.85%, the highest level since April 2012, as it worries that rising prices are looking increasingly sticky. Households are currently facing a squeeze between rising mortgage repayments and still elevated inflation pressures.

“Nearly 70% expect a further rise in variable mortgage rates over the next 12 months, with just over 40% expecting them to rise by 1 percentage point or more,” Evans said, citing the survey results.

Views on finances reversed all their April gains, the report showed. The “finances compared to a year ago” sub-index dropped 10% and the “finances, next 12 months” sub-index was down 10.2%. The “economy, next 12 months” sub-index declined 9.5% and the “economy, next 5 years” sub-index fell 9.2%, it showed.

A gauge of the outlook for household spending, “the time to buy a major household item” sub-index eased just 0.4%.

In contrast, housing-related sentiment posted a sharp lift in May, despite the weak picture on confidence overall and ongoing concerns about interest rates. “The time to buy a dwelling” index lifted 7.3% in May, extending the 8.2% gain in April, the report showed.

The RBA next meets June 6 and Evans expects it to pause rate hikes. He highlighted the mixed picture confronting policymakers, with very weak sentiment coming up against resilience in the labor market and renewed confidence in housing.