The Vouchers Plan: Some "Naive" Thoughts

It is confirmed, the government will spend TWD 82.9 billion (about USD 2.56 billion) in a vouchers plan, which consists in giving TWD 3,600 to any citizen of Taiwan, whatever his/her age or revenue.

The government expects an GDP’s increase of 0.64%.

The government said that people can buy anything including gold or whatever similar investment.

Obviously the officials who mentioned that do not know about economics: at the level of equilibrium output, Savings = Investments, so it is not the way to increase consumption.

Anyway, let’s consider the above point as “theoretical”.

I just have some… “naive” comments or questions concerning this voucher plan and what it is supposed to bring to the Taiwanese economy.

Point 1

Money is fungible (property of mutual substitution) and so it could be strongly expected that people will use the coupon to buy daily stuff and save the cash. Consequences: consumption will not increase.

Point 2

When consumers stop spending because the economic situation and government give them cash or vouchers, it will not increase in the short-term the consumption because people will first re-adjust their assets by paying debts or saving.

It is a well known fact. See what happened in US or Europe during the 80’s. And see the failure of the similar coupon plan in Japan during 1998-1999.

Point 3

The previous point let us state that only negative consequences will result: debt will increase (this plan is based on new debt from the government), inflation will increase (monetary mass will increase faster than the GDP) and so the cost of debt will then increase too.

And taxation will also increase to let the government pay for that.

Point 4

Who has the right to receive the vouchers? Anyone, baby or grandfather if they are citizens of Taiwan.

This plan will be finally paid by taxes. In other words, it will be paid by taxpayers. But not all taxpayers are eligible to receive the coupons (even if you have a permanent residency status).

Conclusion, this plan is only for voters…

Point 5

This plan states that each citizen can receive TWD3,600. But do not expect that will represent the cost per people. You have to include interest, printing cost, distribution cost… and the total should be roughly 10% at least.

So the minimum cost per people will be TWD4,000, paid back in the future.

Meaning? People spend now but they let the next generation to pay.

Point 6

According the DGBAS, the average annual disposable income per household is TWD 960,000 which is compatible with the TWD550,000 annual GDP per people.

On average, there are 3.4 people per household (DGBAS) which mean that on average, each household will be eligible to receive 3.4 x 3,600 = TWD12,240, said less than 1.3% of their disposable income.

Hum… Not so much so do not expect too much…

Especially the same household will have to pay back all the cost, said roughly TWD 14,000 in the future…

Point 7

The yesterday China Post published the results of a poll conducted by 1111 job bank.

The purpose of this poll was to see if people believe or not in this plan.

According the details of the results, 5.4% consider this plan very helpful and 14.51% helpful. So the total of the “believers” is 19.91%.

36.4% of the people expect a limited effect, 33.4% a little help and 10.3% think it will not be successful. So the total of the “non-believers” is 80.10%.

But the title of the China Post article (China Post is blue) is: 89.66% of the population believe that this plan is an effective mean to improve the economy.

How do you explain that?

🙂

Beside, the same poll shows that 57.9% of the people will use the coupon to buy daily necessities, which confirm my Point 1.

Only 36.6% will buy extra items and… 5.6% will try to exchange the vouchers against cash.

Point 8

The government expects a GDP growth rate for 2009 of 2.12%.

In quarter 3, the GDP growth rate contracted by 1.02% and some analysts forecast pessimistic growth rates for Taiwan: from -0.4% (JP Morgan) to +2% (Goldman Sachs).

But how the government could be so optimistic?

Let’s try to understand.

Firstly, it expects an increase of 0.64% thanks to its voucher plan. But I have pointed above that the success is highly questionable.

Secondly, it expects a 1.59% from an unspecified TWD 400 billion in infrastructure. (unspecified plan… and for sure impossible to implement in 2009).

Thirdly, it expects a 0.5% from the 3,000 Chinese tourists (for now, roughly only 200 or 300 Chinese are visiting Taiwan).

So what do you think?

As a former CPA, I call that window-dressing.

🙂

And by the way, just few months after arriving at power, the government increased the level of the debt by roughly TWD 500 billion…

Taxpayer, be prepared. It is not finished yet…

 

Mots clés Technorati : ,,,
Advertisements

2 Responses

  1. […] China and Taiwan, A Real Win-Win Election?About Hunting…Behind the "Diplomatic Truce"…The Vouchers Plan: Some "Naive" ThoughtsCross-Strait Transportation […]

  2. […] is on Discount Posted on December 6, 2008 by fvarga As I wrote about the voucher plan (HERE) the government expects a 0.64% boost for the GDP. As you already know, I do not believe (for pure […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: