OPINION – Earn and spend

The government budget proposal for 2021 and underlining policy objectives is under discussion at the Legislative Assembly. As might be expected, the economic policies received a great deal of attention.

The economy is in the doldrums. There are no short-term expectations for a significant turnaround able to prop up its main growth engines, gambling, and tourism activities.

Under these circumstances, private agents, both local businesses and residents, in particular, await with especial eagerness all revelations about the government’s economic policies.

So far, there were no startling announcements, and the impact of initiatives to mitigate the recessions’ pain is probably limited. As nobody can ignore, GDP plunged after January.

Even if a modest recovery is sustained throughout the last quarter of the year, the end-year results will be dramatic. External demand is stalled and, on current pandemic prevention policies, that situation is unlikely to change shortly.

Domestic private expenditure is restrained as income declined and uncertainty persists. Unemployment is up and likely to go up further, as the non-resident workers’ buffer wears out and temporary palliative job-related measures run past their’ validity dates.’

As the recession goes on, temporary business closures will become permanent; others will be re-sized to adapt to lower customer bases and incomes. Under such conditions, the government’s actions are observed with greater expectations.

Many will look at the administration as the last recourse before their livelihoods crash. The measures announced to support consumption and investment seem too modest to have a meaningful impact on the economic revival, assuming such is their purpose.

In particular, the so-called ‘pecuniary contribution’ got a lot of attention. This year, it will be distributed as a consumption card, and its endorsement came with appeals to spend that income in the local economy.

Indeed, those patacas will be spent locally; there is no other way they can be used. But that does not guarantee they will stimulate local consumption in the short term, not any more than it was already the case when that money came by bank transfer or cheque.

No one can warrant that the expenses using the additional income assigned to that card will add up, and not replace, expenses otherwise supported by other sources of income.

Under the current uncertainty level, the additional income may well translate into increased savings or deferred consumption. Or even immediate the acquisition of goods and services abroad, travel restrictions in place or not.