Prime Minister Taro Aso unveiled a fresh stimulus package Thursday that includes about ¥2 trillion in benefits payments to households, expressway toll cuts and record tax breaks on home loans.
The first such package under Aso is an effort to cope with the ongoing economic turmoil, to revitalize regional economies and to protect citizens from the full effects of the financial crisis. The overall size of the package is expected to be worth ¥26.9 trillion. It entails about ¥5 trillion in fresh government spending, and calls for directing ¥1 trillion in road-related tax revenues to municipal governments.
In an unusual move, Aso also set out a timeline for hiking the consumption tax, saying he wants it raised “in three years’ time.”
“The economy is experiencing a violent storm seen only once every 100 years,” Aso told reporters, referring to the global financial crisis. “Steering is unprecedentedly difficult. The government will (apply) full power.”
While some experts cheer the new measures, others are skeptical. Some critics also say ruling the Liberal Democratic Party, and its coalition partner, New Komeito, are trying to woo voters with cash benefits in the runup to a general election.
The latest measures follow an ¥11.7 trillion stimulus package unveiled in August, before the full scale of the global credit crisis had become apparent.
Although Japanese banks have escaped comparatively unscathed from the crisis, profits of many companies are declining due to the soaring yen and slowing overseas demand.
The Bank of Japan is widely expected to cut its already superlow interest rates as early as Friday.
Under the newly announced package, the government plans to distribute cash to households. An average household with four people will receive about ¥60,000, Aso said.
The government dropped an earlier tax-cut plan in favor of benefits payments after realizing the cuts were unlikely to benefit low-income residents who do not pay taxes.
Similar measures were adopted in 1999, when the government spent around ¥700 billion to distribute coupons to households with children and pensioners. Municipal governments gave out coupons worth ¥20,000 to each recipient.
Expressway tolls will be slashed to ¥1,000 — and around ¥1,500 on regional roads — on Saturdays, Sundays and national holidays.
On weekdays, regional expressway tolls will be cut by around 30 percent.
Also included in the new package are the largest-ever tax breaks for mortgage holders. Premium payments for the national unemployment insurance program will also be lowered and tax breaks offered on securities.
The package also includes measures for energizing small and midsize companies. The government will help finance corporations by providing ¥30 trillion through expanded emergency state guarantees and loans.
However, some economists doubt the measures will be effective.
“The economic stimulus effects (of the package) are extremely limited,” said Hiromichi Shirakawa, chief economist at Credit Suisse, calling the new package too little, too late.
Shirakawa predicted the nation’s employment situation will deteriorate toward the middle of next year as export-oriented companies struggle due to the economic downturn in the U.S., Europe and Asia.
Under those circumstances, consumers are likely to tighten their purse strings. People will balk at taking out mortgages and the benefits payments will go into savings rather than be spent, Shirakawa said.
Sounding a more positive note, Mamoru Yamazaki, senior international strategist at RBS Securities Japan Ltd., said the package will help shore up the economy.
Yamazaki noted that the Japanese economy is largely dependent on overseas demand, which is declining due to the global financial turmoil.
In the middle to long term, it is imperative that the economy be driven largely by domestic demand, and economic structural reforms will be necessary, he said.