Question

Whenever the government of a country makes a decision or launches an initiative, a range of considerations
should be taken into account holistically.
Suppose that the Singapore government plans to provide an extra one-off financial relief to Singaporeans,
which seeks to defray part of the essential living costs borne by citizens from low-income and middle-income
groups. For this purpose, $250 and $150 have been budgeted for each eligible low-income household and
each eligible middle-income household, respectively. The above scenario occurs during more normal times,
not during the current COVID-19 pandemic when several exceptional reliefs have already been dished out.
If you are a policymaker from the government, which one of the following is the best approach to disburse
this financial relief, in your opinion? Justify your choice, with reference to considerations taken into account.
• Approach 1: To disburse the relief in the form of a rebate for utilities bills
• Approach 2: To disburse the relief in the form of a rebate for service and conservancy charges
• Approach 3: To disburse the relief in the form of cash
• Approach 4: To disburse the relief in the form of a set of supermarket vouchers

Answer 1

In this scenario, the Singaporean government plans to disburse financial relief to the Singaporean citizens as a measure or policy to gradually ensure economic stability during the post-COVID-19 pandemic situation. Now, the government has decided to provide $250 and $150 to the lower and middle-income groups respectively as financial assistance during the post-pandemic or outbreak period. If the government adopts approach-1 as mentioned in the question, it would essentially imply a direct concession or rebate deducted from the utilities bills incurred by the households or common families. In this regard, the overall periodic utility bills of the citizens or households will decrease thereby increasing the overall savings and purchasing power of the households or families consequently, holding all other regular or periodic household expenses or expenditures constant or unchanged. Therefore, the price effect of this particular policy approach could potentially lead to higher electricity and utility consumption by Singaporean households or families as a whole as the utility consumption has become cheaper following the imposition of the concerned financial assistance policy under approach 1. Hence, considering a strong price effect in this instance, this approach might not increase the consumption of other goods and services by the local families or households. Similarly, under approach-2 direct discounts and concessions on various service could lead to an increase in the consumption of those particular services and conservancy usage as these services have essentially become cheaper now after the policy implementation. Thus, in this case, if the price effect is relatively strong then the consumption of service and conservancy usage would increase relative to the consumption of other goods and services by households and families. In the same line of economic argument, the providence of supermarket vouchers under approach 3 essentially signifies a direct rebate or discount on the consumption or purchase of various goods and services from specific supermarkets and retail shops. This could primarily increase the household and consumer demand for these particular goods and services sold by the specific supermarkets and retails shops where the vouchers are validated by the government as again, essentially these goods and services have now become relatively cheaper, holding everything else constant or unchanged. However, a direct cash payment to the local households and families in Singapore by the government would mean an enhancement of the general or overall purchasing power of these families and households similar to an increase in the periodic and regular income level of the concerned households and families. Therefore, under approach 3, a direct cash disbursement to the respective families and households could lead to a substantial income effect leading to an increase in the consumption of all the goods and services by these households and families and not of any particular good or service. This would increase the aggregate or overall consumption expenditure in the economy through a general increase in the consumer and household demand for various goods and services in the Singaporean economy thereby stimulating aggregate demand and real output or GDP of the nation, again holding everything else as constant or unchanged. An increase in the overall consumer demand for goods and services in the economy would also consequently stimulate the production of various goods and services by the firms or companies thereby potentially stimulating economic growth and stability during the post-pandemic period or time.