Efficacy of stimulus measures questionable
The economic pump-priming measures agreed upon by the government and Cabinet on Tuesday seem sizable if judged only on the basis of the amounts involved, but whether we can expect economic effects equivalent to the measures' face value remains an open question.
The emergency economic package lays out 7.2 trillion yen in spending and is predicted to have a ripple effect of more than 24 trillion yen in terms of extending credit to small and medium-sized companies, among other effects.
Japan's economic recovery has been erratic and severe employment conditions and deflation remain. There is concern that the economy might stall in the first half of next year.
Nonetheless, we welcome the fact that the government and the Bank of Japan have become closely aligned in their pursuit of economic stimulus measures and an easy-money policy.
Adoption of the economic measures was delayed due the People's New Party's demand for even more government spending, but in the end the amount added to the initially envisaged figure was very small. The market is increasingly concerned by the government's incoherent policy decisions. The administration of Prime Minister Yukio Hatoyama must compile the fiscal 2010 budget by the end of this year to reassure the market.
The stimulus package aims to prop up the economy by pursuing six policy goals including improving employment conditions, boosting consumption by facilitating the purchase of environmentally friendly products, financing small and midsize firms, and supporting regional economies. The employment measures include expanding eligibility for coverage under the employment adjustment subsidy that prevents dismissal of employees by providing companies with leave allowances from the government, in addition to job-placement assistance for young people fresh out of school.
The environmental measures aim at alleviating insufficient domestic demand by facilitating the purchase of eco-friendly cars and energy-saving home electrical appliances, and by introducing an eco-point program for home construction.
The government will also add a total of 10 trillion yen to credit guarantees and emergency lending programs to help financing of small and midsize companies.
These programs are expected to have some effect since they have a good track record from use on previous occasions. However, most of them are expansions or extensions of past programs and break no new ground. They should proceed under careful, constant scrutiny since some of them have already become ineffective.
The government expenditure backing those programs is already padded a little. Of its financial resources, about 3 trillion yen is money saved from freezing some of the economic programs in the first supplementary budget, meaning that the money cut from the previous budget is just being redirected into a new one.
The latest package includes some public works projects such as those promoting the greening of cities, repairing old bridges and putting power lines underground. Though the government pruned public works projects, which would have had a quick effect in boosting the economy, from the first extra budget, it now is trying to put them back into the second supplementary budget. Wasn't this just a waste of time?
This could be the price the Democratic Party of Japan-led government has to pay for sticking to its election campaign pledge to shift spending "from concrete to human resources."
Unless the public works projects, which will be allocated in the latest budget, are highly cost-efficient, the government will be criticized for freezing part of the first supplementary budget when its Cabinet was launched.
A total of 3.5 trillion yen is provided to help local economies, but 3 trillion yen of it will be used to make up for a decrease in central government tax revenues allocated to local governments, which were cut as a result of reduced central government tax revenues.
This means that local governments will not receive money in addition to the initially envisaged budgets.
The government should pay consideration to employment and social welfare, and put priority on policy measures effective in stimulating the economy in its compiling of the fiscal 2010 budget, which has entered a crucial phase.
(From The Yomiuri Shimbun, Dec. 9, 2009)