Cash grants versus tax cuts

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. This e-mail address is being protected from spambots. You need JavaScript enabled to view it if you do.

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0 #11 CommentPhilip Machanick 2009-02-11 07:29
This $42-billion package is a huge lost opportunity. To counter the Libs' spin here, check out my Green perspective, which I will not repeat here at length since it's on my web site.

The bottom line: counter-cycle Keynesian spending is not likely to be inflationary. Given the need to re-gear the economy to more expensive fossil fuels and more renewables and energy efficiency, we should be spending big on renewables (which would also be big job creators) while the economy needs stimulus, and big government spending is fiscally responsible.

0 #12 CommentGraham Young 2009-02-11 07:44
I think it's great that politicians want to post here. Would like to see others. I sent the results of this last survey out to every federal MHR and Senator, which is probably why Andrew Laming is posting.
0 #13 CommentJonathan 2009-02-11 19:23
Philip Machanick, you can't go waste billions of other people's tax dollars on your pet projects. That is called a command economy and it never worked in the communist bloc.

If green energy and green projects were all so efficient, then the free market would allocate resources towards them. Just because people don't choose to live according to your preferences, it doesn't mean you should force them.

And secondly, any Keynesian policies are deeply inflationary. Any expansion of public debt and expansion of the supply of money will set of an inflationary spiral that will be hard to stop once all the central banks of the world get in on the act and race to de-value their currencies.
0 #14 Commentggg 2009-02-11 21:57
I suggest Andrew Laming put his head where most of his current Liberal colleagues have theirs, as then we don't need to read or hear him! His forum is the floor of Parliament, not here.
0 #15 CommentOld Trout 2009-02-11 23:28
Surprise, surprise $42 billion down the drain. Sure a lot will be saved for a rainy day when the high personal taxes and increased GST returns to pay off the largesse get too much for us.
0 #16 CommentMichael Smith 2009-02-12 04:09
I agree why is Andrew Laming allowed to post to this site we don't need his one sided opinion on this very important package to make up our minds.Mr Howard should have put in place a lot of infrastructure when Australia was in good times. Bit failed to do so.Stop talking Mr Laming you had your chance.
0 #17 CommentLaurie 2009-02-12 05:31
Some interesting responses as usual..particul arly those directed towards Andrew Laming. I don't know the man.. and don't particularly want to know him. BUT..

The responses to his posting from some other readers is pathetic.. A typical Leftie idea of a balanced discussion being one in which you get rid of any views that disagree with your views...