Record stimulus package must be spent wisely
The government and ruling parties have compiled the nation's largest-ever economic stimulus package, worth 56.8 trillion yen, which includes 15.4 trillion yen in actual fiscal spending.
This package is about twice the size of the one hammered out during the financial recession a decade ago by the administration of then Prime Minister Keizo Obuchi.
The latest package is a drastic fiscal move and also could prove to be a double-edged sword, as it would generate a huge deficit. Spending must be carried out wisely to boost the economy and strengthen its growth potential.
The government and ruling parties should expedite the compilation of a supplementary budget and its passage through the Diet in order to implement the stimulus measures, and also bounce ideas off each other to ensure the content will truly be effective.
It is estimated that a fiscal outlay of 15 trillion yen would generate about 20 trillion yen in demand. This could compensate for the shortage in demand in the economy. The Cabinet Office predicts that the employment rate, which eventually could peak at between 7 percent and 8 percent, would stay at about 5.5 percent or so if the stimulus plan were put into place. Given the current economic situation, the amount of spending seems adequate.
Broad stimulus ideas
The measures are wide-ranging as they include moves to secure employment, as well as emergency measures to ease pain caused by the economic downturn, such as financial assistance to cash-strapped small and midsized businesses. There also are measures to stimulate consumption, investment and other domestic demand. This is because the nation's economy cannot depend on external demand from the United States and other countries, as it does not look as though their respective economic recoveries will occur soon.
Subsidies for consumers purchasing fuel-efficient automobiles and energy-saving home electric appliances are expected not only to serve the original goal of helping the environment, but also to help such products recover in sales. And in order to make sure these boosts in sales are not temporary, manufacturers should do their utmost, outside of government-subsidized help, to develop new products that appeal to consumers.
Reductions in the gift tax, meanwhile, would be applied only when children or grandchildren receive financial assets from their families for the purpose of buying a home. The upper gift tax exemption limit would be raised by 5 million yen, but this increase does not seem as though it will be enough to help spur housing purchases. Apparently in concern over public criticism that the measure benefits only the affluent, government officials and ruling bloc lawmakers specified the target of the measure and decided to expand the exemption limit by only a modest amount.
If the economy is invigorated by the use of dormant financial assets held by elderly people, it likely would benefit the entire population. The scope of the gift tax measure should be further expanded to bring about more positive effects to the economy.
Think beyond 3-year period
Subsidies for measures to improve benefits for care workers and improve nursing care facilities would increase employment opportunities in the growing welfare service industry. But as the subsidies are only valid for a three-year period, impact would be temporary.
The government must secure a stable financial source to sustain the nation's social security services through increases in the consumption tax and other measures, once the economy gets on a recovery track.
In regards to public works projects, which are said to be very effective in boosting the economy, the focus will be on those that put priority on "the environment" and "safety." However, thorough checks will be needed to make sure such labels are not taken advantage of to disguise wasteful projects.
The issuance of government bonds for implementing the new stimulus package likely will exceed 10 trillion yen, which would mean the amount for the entire fiscal year would surpass 40 trillion yen. If the increased issuance of government bonds causes long-term interest rates to rise, it would result in decreases in private investment and a rise in the yen's value. It is essential the government and the Bank of Japan cooperate via such operations as the central bank's purchase of more government bonds.
(From The Yomiuri Shimbun, April 10, 2009)