Wednesday, November 19, 2008

Vouching toward Bedlam

The US Postal Service annexes Taiwan to China. Was there a change in policy I missed?

The voucher plan details are slowly emerging, showing how the government plans to shower cash all over Taiwan....

Under the plan, by Lunar New Year on Jan. 24 each citizen can receive vouchers worth a total of NT$3,600 from his or her household registration office by showing documents that prove citizenship.

The expiration date of the vouchers will be Dec. 31 next year, while the face amount of each voucher note has yet to be determined.

Liu said that the program did not exclude the wealthy because it is designed to “stimulate more consumption to get the economy going” and “not to provide social assistance.”

“Wealthy people or people who are not in need of the vouchers can get a tax break by donating the vouchers to charities,” Liu said.

The government expected to see an increase of 0.64 percent in next year’s GDP based on the assumption that all the vouchers are used to purchase goods and services and are not converted to cash and deposited in bank accounts.

We taxpayers but non-citizens cannot get one. Noting that the voucher plan has to get around laws that sensibly limit public debt to capital expenditures -- in other words, debt that creates useful stuff. One legislator noted:

The KMT administration has already allocated NT$300 billion to source its 12 major construction projects in debt financing, and it proposed an NT$82.9 billion budget for the coupon plan, so the government will have around NT$400 billion in debt financing only six months in office, Tsai said.

A number of groups, including the DPP, have argued that a cash gift or tax credit might be better idea. The vouchers are only usable at legally registered businesses, so many small businesses will be left in the cold. The Taipei Times pointed out:

The KMT marketed Vice President Vincent Siew (蕭萬長) as an economic wunderkind when he and President Ma Ying-jeou (馬英九) ran for office. With Taiwan facing a serious global and domestic economic challenge, how ironic it is that tough times should feature yesterday’s men sprouting confused policies.

The other irony is that the KMT legislative caucus recently denied the Democratic Progressive Party caucus a tax cut, saying that there wasn’t enough money. Now it is saying that there is enough money — in the form of mounting debt for our children — and all this during a global financial earthquake.
Isn't it good to know "the adults are in charge"? And why are we taking on debt to spark the economy -- isn't our lurch toward China supposed to result in a rain of Chinese investment to stimulate growth? Guess the Chinese tourists are all flying Amelia Earhart Airlines.... If the KMT Administration were a fish, it would be flounder.

Even more confusing are the rules. My wife and I read with vast amusement one set of explanations from a media outlet that said you couldn't sell them (but you could give them away) while another media outlet said that there would be no problem selling them through internet auction. Could criminals use them? The rabidly Blue United Daily News posed this question as "Could Chen Shui-bian use them? -- Yes." So much for journalistic detachment.

If a stimulus is desired, a much greater effect could be had simply by spending the quatloos on infrastructure. Effects vary, but at the end of the day, infrastructure spending leaves the economy with useful things like roads, bridges, and ports that continue to generate economic activity years into the future. The voucher plan? Our kids will be paying the interest on it, years into the future.

UPDATE: Enjoy this fellow with eight wives and 32 kids, getting $150K worth of vouchers.


Anonymous said...

If you can't sell the vouchers or give them back to the government... can you stash them in Swiss bank accounts or give them to your children overseas?

Unknown said...

USPS most likely use the ISO country codes which lists Taiwan as Taiwan, Province of China. I thought there is a lawsuit in Switzerland on this issue. Do you happen to know any follow ups?

Anonymous said...

The claim of the KMT at the time was that you can't raise public debt in order to fund a tax rebate check. The problem with that logic of course is that's what they are doing now.

The idea behind spending vouchers is that there is a limited amount of time you must use it in, so you have to spend it, stimulating the economy instead of simply putting it into a savings account where it will do nothing for the economy.

That's stupid because if I was spending X dollars a month, I'm simply going to replace a portion of that with spending vouchers and save the rest, just like I was doing before. Well, there's probably something like a "wealth effect" going on, so it's possible I will spend more, but absolutely nothing guaranteeing I'm going to spend the voucher, since it replaces cash spending that I can easily save now.

They should have just handed out rebate checks. The administrative costs are much lower.

And the KMT needs to start owning up to clear mistakes, like claiming this was a bad idea, then doing it a couple of months too late.

Anonymous said...

I just wanted to let you know that your comments and interaction are welcome at our blog. The other commenter "Daniel" seemed to indicate that your thoughts weren't welcome but as one of the authors of the blog I want you to know you are more then welcome to be a part of the conversation at anytime in anyway at whether I agree with you or not.

Anonymous said...

That photo with the "province of china" label is ridiculous, unless if "province" means an independent self-governing entity with its own flag, currency, governance, and rule of law.

TicoExpat said...

Michael, not much we can do about bias. Era TV actually went out on the streets and asked the loaded question: Do you agree that Chen Shui-bian's family will get over 30 thousand becaus etheir family has ten members? Gee, guess what was the response.

Why don't they ask questions about the land that was taken from their own neighbors, the money and properties stashed in the US, for generations to come?

No wonder they lost the war because the ones on top kept the money... *sigh*

Tommy said...

Americans saw firsthand the benefits of tax rebates, which are still more convenient than coupons, a few months ago. The government mailed cheques to everyone. I received US$300... which I will never spend in the US as I don't live there or pay US taxes. (A study that analyses the effectiveness of the rebate is here:

Second quarter consumption increased. What then? Consumption went back down again as the real problems started. And the government consequentially had to make due with US$100 billion less, although with the amount of debt they are accruing, I doubt it would have made a difference.

I am sure that there will be a small but positive effect on Taiwan's economy. But, as you have already noted, the real questions are whether or not this is really the best use for the money in question and whether or not spending the money in this way now will cause other problems later. Then there is the problem of Ma/KMT credibility. They refuse a tax cut before, then refuse rebates, then approve a dumb coupon system that won't really solve anything in the long term.

If this recession really lasts two years, this coupon plan will be a minor blip on the radar. The whole thing sounds more to me like a ploy to gain public support in the short term rather than solve any economic problems in the long term.

Anonymous said...

Maybe they should issue "Gold Certificates" again, so people can give the government their gold and get a worthless piece of paper in return.

Robert R. said...

We taxpayers but non-citizens cannot get one.

My wife was saying that those married to citizens may still be eligible for this. At least my daughter should be born before the new year.

For the voucher vs. cash, many people will essentially bank the vouchers, but others will see it as extra money. Also, because each voucher must be spent at once (no cash back) means that some will get some extra things to get them over the limit.

But in the end, the payback on these vouchers will be piss-poor.

Unknown said...

Obviously the reason why foreign taxpayers are excluded is because we can't vote.