The Cabinet announced a plan on Nov. 22 to hand out consumer vouchers to stimulate spending and boost the economy. The plan requires a special budget of NT$82.9 billion (US$2.5 billion). Although inappropriate, the policy is friendly to the public and voter concerns make it difficult to oppose. As an academic, however, I must disagree.
Theoretically, the vouchers might only be spent on daily necessities that would need to be purchased anyway. The vouchers’ low face value will influence consumers to use them to buy daily necessities. If this is the case, the impact of the vouchers on increasing consumption and boosting the economy should not be exaggerated.
Rational consumers understand that these vouchers must be paid for by future generations, and so they may not rejoice over this “gift from heaven.” Our expectations that they will boost the economy should not be too high.
By the same token, if the scheme had taken the form of a tax rebate, it would have produced the same results as the voucher scheme as long as the rebate was spent, not deposited. How many people would go to the bank to deposit such a small amount? A small tax rebate would serve exactly the same economic purpose as the consumer vouchers.
What is the theoretical basis for a tax rebate? To high-income earners, it would be a tax refund to compensate for the loss of purchasing power resulting from inflation. To low income earners, it would be negative income tax, implying a social subsidy. In addition, a tax rebate would eliminate many problems when determining qualifications for receiving the rebate. From a practical and administrative perspective, a tax rebate would be better than consumer vouchers.
Printing vouchers will be expensive. If each voucher has a face value of NT$100, the cost of printing 800 million vouchers will be NT$800 million. The vouchers will also have to be destroyed, which will incur more cost and will be environmentally unsound. If cash was distributed instead — as long as there were enough bank notes in stock — the notes would be reused. Although printing costs could be reduced if the government decided to issue consumer vouchers with larger face values, that would only serve supermarkets and department stores while discriminating against small eateries because only exact change will be allowed when a voucher is used.
There is also the risk of counterfeiting — whatever anti-counterfeiting techniques could be used for the vouchers won’t be as sophisticated as those of bank notes. Stores, financial institutes and the government would have to bear the cost of fake vouchers.
It is difficult to estimate the cost of distributing, cashing, inspecting and voiding the vouchers. After they are cashed, the government must clear, inspect and void them. It is not clear who will be in charge of this process, and there will be large handling fees and overtime costs.
A cash tax rebate, however, would not have the problems or the costs caused by cashing, inspecting and voiding vouchers.
In addition, if the qualifications for receiving consumer vouchers were restricted, it would lead to disputes over unfairness, but in the case of a cash rebate, these issues would be dispelled.
A cash rebate would have the same effects as the vouchers in terms of boosting consumption. The voucher proposal is wasteful. How can the government face the public with policies like this? It should issue a tax rebate instead.
Hwang Ming-sheng is a public finance professor at National Chengchi University.
TRANSLATED BY TED YANG