In an apparent about-face in his economic policy, Prime Minister Junichiro Koizumi hinted Tuesday that the government may draft a supplementary budget for this fiscal year to fund a social safety net for people who lose their jobs as a result of aggressive efforts to dispose of bad loans.
“We will decide (whether to compile an extra budget) after examining various proposals to be floated,” Koizumi told reporters, referring to an economic package the government plans to draw up in mid-October.
In the evening, however, Koizumi went back on his earlier remarks, telling reporters at the Prime Minister’s Official Residence, “I think that’s a false report” by the media.
Asked whether the government will break the 30 trillion yen cap he has placed on bond issues in fiscal 2002 to fund additional spending, Koizumi dismissed the question, saying, “I’m not thinking of compiling an extra budget.”
Nonetheless, he added, “Not during this (coming) Diet session,” hinting that even though the supplementary budget might not be submitted to the extraordinary Diet session scheduled for Oct. 18, the government might raise the issue at the ordinary Diet session that begins in January.
The upcoming package of measures is likely to be designed to speed up banks’ disposals of bad loans, a move widely regarded as the most effective way to revitalize Japan’s stagnant economy.
The initially positive reception the proposal received from Koizumi, who had previously ruled out an extra budget, suggests he is caving in to political pressure.
Calls for an extra budget to be compiled by March 31 to soothe the pain of the promised cleanup are growing, and fears of radical changes at banks have already knocked Tokyo shares to 19-year lows.
Since the swift abolition of bad loans will inevitably increase the number of corporate bankruptcies and unemployed, calls are mounting within the ruling bloc for additional government spending to create a social safety net.
The Health, Labor and Welfare Ministry is currently preparing extra measures to combat unemployment, such as job training for young people without jobs. The Ministry of Economy, Trade and Industry is also considering expanding government lenders’ loan guarantees for small and midsize companies.
On Monday, the heads of the ruling coalition parties — the Liberal Democratic Party, New Komeito and the New Conservative Party — urged Koizumi to come up with specific steps to rejuvenate the economy, including additional fiscal outlays.
Drafting an extra fiscal spending package, however, would probably imperil Koizumi’s political standing, which centers on breaking Japan’s addiction to deficit spending.
Koizumi has pledged to limit government bond issuance to 30 trillion yen in fiscal 2002, a cap that has already been reached under the initial budget for this year. Any further spending from government coffers will break that promise.
Koizumi has refused to comment on how any extra budget would be funded.
Earlier Tuesday, Finance Minister Masajuro Shiokawa said the government should focus on implementing measures funded under the initial fiscal 2002 budget to fight deflation, rather than resorting to a supplementary budget.
“We should make accelerated efforts for the early execution of the budget rather than formulating an extra budget,” Shiokawa told a news conference.
Shiokawa suggested that the government work out specific policy measures to help ease the plight of small businesses before studying new fiscal measures.
“A supplementary budget would not have any effect unless the government comes up with measures to help small and medium-size firms and unemployed people,” he said.
Financial Services Minister Heizo Takenaka also voiced caution against the government turning hastily to a supplementary budget to bolster the economy.
“We are at a stage where we should decide what kind of policy measures are necessary,” he told a news conference. “Simply deciding whether an extra budget is necessary would mislead us.”
But Land, Infrastructure and Transport Minister Chikage Ogi said the government should consider compiling the extra budget as an option to help workers who have lost their jobs.
“A supplementary budget is worth studying from the viewpoint of providing a safety net for those who are expected to lose their jobs,” Ogi told reporters, apparently referring to workers in the construction industry, the sector expected to be hit the hardest by Koizumi’s structural reforms.
Economy, Trade and Industry Minister Takeo Hiranuma expressed support for an extra budget aimed at helping small companies.
“We should establish a safety net solidly to prevent structural reform from eroding Japan’s economic vitality,” Hiranuma told reporters.
“Small companies will face a strong financial burden in the process of disposing of bad loans,” he added.