Japan’s minority government was expected Friday to approve a $140-billion stimulus drive aimed at putting more money in consumers’ pockets after the ruling party’s worst election result in 15 years.
The October 27 contest saw voters — angry over corruption in the Liberal Democratic Party (LDP) and inflation — deprive new Prime Minister Shigeru Ishiba’s coalition of a majority in parliament’s lower house.
Before a cabinet meeting on Friday morning, Ishiba was quoted by local media as saying the package would be approved later in the day.
The 22-trillion-yen stimulus bundle includes energy and fuel subsidies as well as cash handouts for low-income households in the world’s fourth-biggest economy, according to the media.
The overall impact of the package, set to go before parliament at a later date, is projected to be worth 39 trillion yen when including loans and private-sector investment, the reports said.
Ishiba’s cabinet plans to formalise the measures on Friday and push a supplementary budget to pay for them through parliament by the end of the year, Kyodo News said.
To win enough lawmakers’ support, Ishiba agreed to include the lifting of an income tax threshold pushed by the opposition Democratic Party for the People (DPP).
The smaller party says this will ease labour shortages and boost consumer spending by encouraging part-time staff to work longer hours and earn more.
But critics worry that this will reduce tax revenues by trillions of yen, leaving major holes in the national and local budgets.
Japan already has one of the world’s biggest ratios of national debt to output, with state spending predicted to balloon as its population ages and it struggles to find workers.
– ‘Quiet emergency’ –
Tax cuts “must be accompanied by a permanent source of revenue to fill the gap”, said SMBC Nikko Securities economist Yoshimasa Maruyama.
“Excessive” loosening of fiscal discipline would lead to higher interest rates in the financial markets, Maruyama said in a research note.
The package comes a year after Ishiba’s predecessor Fumio Kishida, who resigned earlier this year, announced a stimulus package worth 17 trillion yen ($113 billion at the time).
Ishiba, 67, has promised to revitalise depressed rural regions and to address the “quiet emergency” of Japan’s shrinking population with measures to support families such as flexible working hours.
Going forward, businesses worry that the need to curry favour with opposition parties means Ishiba will avoid reforms needed to improve Japan’s competitiveness.
