Does the consumption voucher scheme help to stimulate the economy?

IFTM Comments is a partnership between Macau News Agency and Macao Institute for Tourism Studies

By Joey Sou

In September, Macau government announced another round of “Living Allowance Scheme” to alleviate the negative impact of the epidemic on residents. Permanent and non-permanent residents are entitled to MOP8,000 of electronic consumption vouchers to be spent between 28 Oct 2022 and 30 June 2023.  There is no doubt that the policy has provided immediate financial relief to the public; however, whether the scheme works as an economic stimulus remains unclear.

The economic stimulus effect in fact hinges on the scale of “fiscal multiplier”, a concept that measures the increase in total economic output (or GDP) for each dollar of government spending. The size of the multiplier can vary according to the types of fiscal action. A consumption voucher scheme that has to be used within the local market has a larger multiplier than a direct cash handout, since cash can be spent outside of the economy. However, a subsidy granted for a specific purpose, or aimed at a specific group of beneficiaries, may have a higher multiplier than one granted for general consumption. For example, in order to restore visitors’ confidence, the Macau government provided hotel accommodation subsidies to tourists who stayed during the Golden Week holidays. Since leisure tourism is income elastic, demand may rise more than proportionately with income (or subsidy in this case).  The surge in hotel occupancy, visitor arrivals and length of stay during the period indicates the scheme is working. The consumption voucher scheme is advised to adopt similar targeting strategies.

 On a related note, the multiplier effect of the consumption voucher is likely to be low because of the relatively high fungibility (or substitution) between money and the voucher. If residents replace the amount of money they would have spent with consumption vouchers and save or spend the proceeds outside of the economy, there is no economic effect. Stimulus effect can only be achieved if extra spending is induced from the government subsidy.  However, a recent survey showed that Macau residents mainly use the vouchers to purchase daily necessities, with little induced spending on leisure and other non-essential items. It’s possible that uncertainty about the macroeconomic situation and worsening employment have increased risk-averse households’ propensity to save rather than consume.

Nevertheless, one important benefit of the scheme is the promotion of electronic payments in the city. Macau is the first city in China that introduces consumption vouchers in the form of electronic payment.  The policy effect has been enlarged by the promotion (e.g., bonus credit) provided by the major e-payment service providers. Business discounts for voucher users also played a significant role in boosting consumer confidence. Many SMEs install e-payment devices, helping to popularize the system throughout the city. The use of this technology not only helps to improve the efficiency of business operations, but the big data obtained also provides them with valuable information to better understand their customers. The information also facilitates policymakers to evaluate the effectiveness of their policies. This does speed up the process of upgrading and transforming Macau into a smart city.

After all, consumption vouchers are only temporary measures to boost internal demand. Authorities should aim to strengthen economic resilience in order to deal with insufficient external demand. In the short term, resuming group tour visits and easing the issue of electronic visas for individual tourists from major provinces and cities can help stabilize Macau’s visitor sources. To cope with the challenges of the post-epidemic era, the economic transition should focus on developing industries that generate new growth momentum in order to sustain development in the long run.