Why Budget’s cash handouts won’t work
The Morrison Government should hand out shopping vouchers, not cash, if it wants consumers to immediately stimulate the economy during the pandemic, says a leading academic.
Under the Budget handed down on Tuesday, pensioners, veterans and other eligible welfare recipients will receive $250 cash in December and another $250 in March.
There are also income tax cuts across the board to help boost the economy and it comes after $750 cash was gifted to pensioners earlier this year.
However, Prime Minister Scott Morrison's best intentions may not be the most effective method to get consumers to freely spend, according to Griffith University Professor Fabrizio Carmignani.
The Dean of Economics says there is a high likelihood the cash handouts will be squirrelled away rather than spent immediately.
Instead of cash bonuses, he said shopping vouchers with a very short life span would force people to spend and the funds would instantly start flowing through the economy.
"People in a period of uncertainty tend to save more because most people want to spread the money out over a longer period of time," Mr Carmignani told NCA NewsWire.
"If you give them a voucher for consumption within a specific time, then they will use it.
"It's something I would like to see them try as it's a bit more of an aggressive way when you have to use vouchers and it's something we need to keep in mind."
Vouchers are used in other parts of the world, including the USA for education, said CommSec chief economist Craig James who agreed distributing vouchers had merit.
Mr James said cash deposits were simple for the government to administer because the mechanism to distribute the funds was already in place.
However, if the latest efforts to stimulate the consumer economy fall short of the mark then the government may need to devise a "plan B" which could be a voucher system.
"To come up with something new, they will have to devise new procedures," Mr James told NCA NewsWire.
"It (vouchers) is not something that has been actively tried in Australia, but they do use these types of schemes in other parts of the world.
"If tax cuts don't work the magic and force people to go out and spend, there may need to be a plan B and a new strategy.
"We could entertain a voucher system, although I'm not sure about debit cards, but they have to have an expiry date and not be able to be spent on alcohol, gambling or tobacco."
Mr James said shopping vouchers alone were not a magic bullet to kickstart the economy as it required employers to start hiring and people physically returning to their place of work.
National Retail Association CEO Dominique Lamb backed the plan, saying distributing debit cards may be just as effective and benefit all retailers and not just major outlets.
"This theory could work but if the government was to purchase gift cards, all from one provider, then that would likely disadvantage small business," she said.
"Using Eftpos, MasterCard or Visa debit cards could work well. "
Originally published as Why Budget's cash handouts won't work