The government formally released its Triple Stimulus Vouchers on Wednesday last week with the aim of reviving consumer spending amid the COVID-19 pandemic. However, consumer activity already started to pick up in May, as the virus situation has been brought under relatively control in Taiwan, and the momentum is expected to improve.
As the program coincides with the summer tourist season, there are high hopes for the government- issued vouchers, which cost NT$1,000 and are worth NT$3,000. The Ministry of Economic Affairs estimates that the NT$50 billion (US$1.69 billion) program would boost consumption by as much as NT$111.2 billion.
Although less convenient than cash, the vouchers are designed to support businesses affected by the pandemic, especially brick-and-mortar retailers. Local governments in Taiwan are urged to consider similar measures, depending on their budgets, and businesses are encouraged to provide better deals or discounts to people using the vouchers.
However, the program might not reach its full potential if the “substitution effect” plays out, in which people spend the vouchers on daily necessities rather than dining out, tourism or large-ticket items.
The program might remind some people of the NT$3,600 vouchers that the government handed out to citizens and residents in 2009 during the global financial crisis. The government had expected the NT$85.6 billion program to spur consumption and add 0.64 percentage points to GDP growth, under the assumption that the vouchers would be used for consumption rather than being deposited in bank accounts.
However, due to the substitution effect, the 2009 program added only 0.28 to 0.43 percentage points to annual GDP growth that year.
Although this year’s voucher program is different from the 2009 one, the substitution effect is inevitable and expectations should be kept in check.
Economists at Cathay Financial Holding Co forecast that this year’s vouchers would boost the nation’s GDP growth by 0.1 to 0.2 percentage points, or generate additional output of NT$200 billion to NT$400 billion.
Compared with Taiwan’s GDP of NT$19 trillion and NT$10 trillion in private consumption, the contribution of the Triple Stimulus Vouchers is limited.
Overall, stimulus vouchers might support strained brick-and-mortar businesses in the short term, but they will do little to support the kind of discretionary spending needed to revive the economy, which Academia Sinica last week forecast would grow 1.15 percent this year, down from the 2.58 percent growth it predicted seven months ago.
Because of a possible global recession and a second wave of COVID-19 infections, it is a challenge for the nation to continue growing its exports after they rose 0.5 percent annually in the first half of this year, while the situation in the manufacturing, airline and transportation industries has not improved.
Most economists believe that the worst is likely over for Taiwan and the situation might improve quarter-by-quarter. However, as long as the spread of COVID-19 continues worldwide and in the absence of effective vaccines or treatments, Taiwan’s economy will likely be affected, even if the nation’s epidemic situation is under control. Following the launch of the Triple Stimulus Vouchers and other relief measures, the government’s economic priority should now be to support heavily affected businesses, particularly export-reliant companies in the manufacturing sector.
Based on Ministry of Labor statistics, the manufacturing sector recorded the largest number of furloughed workers, with 15,927 as of July 8. If the trend of unpaid leave continues to escalate in the sector, coupled with wage cuts, layoffs and business closures, it would affect domestic consumption and the nation’s economy as a whole.
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