Global-is-Asian will feature a new series of articles drawing on the COVID-19 Policy Response in East Asia policy tracker by the Social Inclusion Project (SIP), Lee Kuan Yew School of Public Policy (LKYSPP), NUS.
SIP is LKYSPP’s research programme dedicated to analysing the role of public policies in creating an open, diverse and inclusive society, where people have opportunities for participation. Its activities aim to influence policy development, promote policy literacy and enable engagement.
Cash transfers are controversial in social policy. Critics argue that handouts are expensive, risk creating dependency and should be a last resort strictly targeted at the poorest. But proponents consider them an important source of income security and a buffer against social risks. Over the past two years, this debate has been advanced by the prominence of cash transfers across East Asia as governments sought to lift public spending sentiment and invigorate their economies. They demonstrated the unique ability of cash transfers to serve diverse policy goals: as an economic measure to support businesses, a social intervention to assist families and a political strategy in response to domestic and international priorities.
Cash transfers as economic measure
Domestic demand is critical to economic recovery. In a Keynesian economic model, disbursing cash or vouchers to households directly increases disposable household incomes and triggers a fiscal multiplier effect, stimulating business revival and job market recovery through higher consumption.
In 2020, Hong Kong issued HK$10,000 (S$1,833) to all permanent residents. This was followed by a consumption voucher scheme in 2021, consisting of two rounds of electronic consumption vouchers worth HK$5,000 (S$917) each time. These could only be spent locally and within a specific period. By setting an expiry date, the government could sharpen the impact of the intervention and monitor its outcomes more closely. After the government handed out the first batch of consumption vouchers in April, retail sales rose by 11.7 per cent year on year.
Cash vouchers can also be calibrated to support specific businesses and sectors. In May 2022, the Singapore government issued S$100 worth of consumption vouchers to every household, redeemable at hawker stalls and other shops in residential neighbourhoods. The vouchers were in fixed denominations of small amounts so that consumers could make multiple purchases at different businesses.
Similarly, the South Korean government issued traditional market gift certificates to support small businesses in their 2021 COVID-19 budget. In Taiwan, government agencies launched various stimulus programmes, such as the Agriculture Traveling Voucher scheme, combined with promotional activities to bolster specific sectors.
Social and political goals
As a social policy, cash transfers help with income redistribution. In June 2020, low-income Singaporeans aged over 49 years old with at least one child below 21 received S$1,000 to help them cope with the economic crisis amidst the national lockdown. Then in June 2022, the government announced another special payment of S$300 to lower-income households.
In Japan, children aged 18 or younger in households with an annual income below 9.6 million yen (S$95,724) received a 100,000 yen (S$997) cash top-up to their child allowance account to cushion the impact of rising prices. By putting money into pockets, these schemes helped families to cope with immediate financial distress.
In other cases, cash transfers appear to be politically motivated. In Hong Kong’s latest cash voucher scheme, residents who had left or planned to leave the city imminently were excluded. The government adopted these criteria to signal their intention to retain talent and reward people who stay behind as emigration had risen substantially in recent years.
Likewise, Taiwan extended its stimulus programmes to diplomats as a gesture of generosity and friendship, consistent with other efforts to build its reputation as an active member of the international community, under the “Taiwan Can Help” slogan.
Addressing fiscal concerns
Fiscal discipline has been a top priority for governments as national revenues contracted during the pandemic. To preserve fiscal solvency, governments had to ensure that their budgets were commensurate with their reserves.
Some critics worry that universal cash transfers may create populist pressure and are an abuse of public resources. One obvious way to mitigate the fiscal burden is to target the distribution, as the schemes in Singapore and Japan have done.
Requiring co-payment is another way to both relieve fiscal spending and encourage usage. Taiwan launched multiple rounds of stimulus cash voucher schemes throughout the pandemic. In the first round, people had to pay upfront for the vouchers at discounted rates. Eligible citizens could purchase NT$3,000 (S$136) worth of Triple Stimulus Vouchers for NT$1,000 (S$45). Payment was waived for lower-income households. The government later distributed NT$5,000 (S$226) worth of Quintuple Stimulus Vouchers for free.
Another possible objection is that such transfers, either in cash or vouchers, require substantial administrative resources, from planning coverage and method of use, to setting up distribution systems and monitoring mechanisms. In this respect, universal cash handouts have the advantage of quicker and cheaper implementation over targeted measures. Costs are also vastly different when issuing physical vouchers compared to electronic vouchers.
To make cash transfer schemes work, governments have to consider national economic and political conditions. However, given the realities of the global supply chain crisis, temporary, one-off cash transfers alone cannot address inflationary pressures and stagnant wages. Much more remains to be done to tackle both the immediate and long-term impacts of COVID-19.