February 06, 2009 | Graham

Cash grants versus tax cuts

(Cross posted from What the people want)
Federal Parliamentarians are debating whether tax cuts or cash grants are more effective in encouraging spending. Our research suggests that it probably doesn’t make much difference.
Between January 30 and February 3, 1573 Australians gave us their views on politics and the economy. This research is qualitative, and we normally use quantitative results to place the qual in context. However, it would appear that despite the limitations of our quantitative figures they are likely to be better than anything else currently available.
I will be releasing the research results over the next few days, and am releasing these figures first in response to circumstances.

How much of the $10.4 billion cash grant was spent over Christmas, and on what?

68% of our respondents received nothing. Of the 32% who did, 53% spent the money (including 20% who used it for house maintenance or improvement). The balance saved it.

What would you do with any surplus funds?

This question was deliberately held neutral so that we didn’t mention tax cuts, or cash. So in one sense it doesn’t answer the question of which is more effective, because it could have been that respondents had one or the other in mind, and there is no way of telling.
However, what the figures actually show is that there is no predictable answer to this question because the answer depends on who you are and what your needs are. While 30% say they would spend as their one or two preference, 37% say it is their last or second last preference. This seems fairly flat. But if you remove expenditure on housing because it may have qualities of both spending and saving, then the trend is quite clear.
So, whatever form the money comes in, people say that they are most likely to either save it, or spend it on their largest capital asset. So perhaps a voucher for your local hardware store would be the best way of getting money out into the economy.
And if you take the housing effect out of the Xmas figures, the proportion who spent declines to 33%.
All of which suggests that it probably doesn’t matter how you provide the benefits, if people think that things are getting worse, then the rational thing is to hoard.
There is a lot more depth in the data, and we’d be happy to provide more in-depth analysis if you think you need it. Email me if you do.

Posted by Graham at 8:30 am | Comments (1) |
Filed under: Economics

1 Comment

  1. When things do get worse, the rational and often the only thing to do is spend your savings. The government are facing that situation as well.

    Comment by Kevin Rennie — February 6, 2009 @ 9:17 am

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