Last Saturday, The government issued consumer vouchers to the public for the first time. Since then, officials have been doing all they can to promote the vouchers, while shops are offering a multitude of ways consumers might spend them.
All this hype has prompted a veritable spending craze among voucher recipients, which include all citizens and resident foreign spouses. For the disadvantaged, such as the unemployed and those with low incomes, the government’s “red envelope” of NT$3,600 just before the Lunar New Year may not lift them out of poverty, but it will be of some comfort.
With this in mind, we are reluctant to spoil the fun by throwing cold water on the scheme.
Still, we have to remind the self-contented government of President Ma Ying-jeou (馬英九) that the vouchers are no more than a temporary stimulant. They may be able to spur the economy for a short while, but they are not going to save it.
The government should not be satisfied with short-term effects while ignoring long-term planning. If it does not take action at the opportune moment, the economy will sink deeper and deeper into trouble.
The voucher issue is a first for Taiwan. Japan is the only country to have tried a similar policy in the past, and the results there were not very satisfactory.
However, the government still copied the Japanese example, showing that its financial and economic team was unable to come up with much to face the once-in-a-century economic tsunami.
Besides the fact the measure can only bring the country temporary relief, it is important to note that the vouchers have been paid for by raising debt under a special budget.
In other words, the government has borrowed money from the future to handle the predicament it faces today. Fundamentally, this is not much different from having consumers take out bank loans themselves.
While taxpayers may feel that this NT$3,600 is a gift from heaven, they should not be too happy too soon. There is no such thing as a free lunch and we will eventually have to repay the voucher loan plus interest.
The government’s optimistic estimate says the NT$85.6 billion (US$2.55 billion) in vouchers could boost the annual economic growth rate by 0.64 percent. However, the real reason for poor domestic demand is not the public’s reluctance to consume but the fact that many newly unemployed people have no money for shopping at all.
Even those who do have money in their pockets dare not spend it now because they are worried that they, too, could lose their jobs.
On top of this, many workers’ buying power has been hit by salary cuts. As fear of unemployment spreads, people’s consumption behavior tightens. These vouchers are really no more than a year-end subsidy that may make up for the shortfall in consumption but cannot stimulate it further. The economic benefit may be less than the government expects.
Taiwan’s economic ills arise not only from poor domestic demand, but also from a serious decline in exports. Many companies are closing down or slashing output. They are laying off employees, cutting salaries or forcing workers to take unpaid leave. With higher unemployment figures and lower salaries, a knock-on effect cuts consumption.
The decline of consumption power is part of a vicious cycle caused by the loss of job opportunities and falling wages — structural problems that the vouchers cannot resolve. At the same time, exports to China and Hong Kong were down 54 percent year-on-year last month and figures show the drastic decline is already taking a heavy toll on the economy.