Prime Minister Shinzo Abe’s Cabinet on Thursday approved an economic stimulus package worth ¥18.6 trillion in a bid to avoid a sharp economic downturn following the planned 3-percentage-point sales tax hike to 8 percent next April.
The government is expected to spend ¥5.5 trillion of the package, centering on measures to promote reconstruction work in areas hit hard by the March 2011 quake-tsunami disaster and new infrastructure investment ahead of the 2020 Tokyo Olympics.
The latest stimulus package, which will also entail local government spending for public works projects and grants to support smaller firms’ financing, would be as large as the one worth around ¥20 trillion mapped out in January to boost Japan’s lethargic economy, which was suffering from chronic deflation and a stronger yen.
Abe’s government has decided to take steps that will have an immediate effect, such as public works projects and provision of benefits to households, estimating the new package will create at least 250,000 jobs and boost Japan’s gross domestic product by around 1 percentage point.
“I believe we can ensure a path toward the end of deflation and economic revitalization by swiftly implementing the economic stimulus package,” Abe said during a policy meeting of the Liberal Democratic Party-New Komeito ruling bloc at the prime minister’s office earlier Thursday.
Most of the policy proposals in the package, however, do not break new ground, casting doubt on whether the stimulus plan can prevent the tax hike from hurting the economy, which has been steadily recovering on the back of “Abenomics” for the past year.
Under the latest stimulus package, ¥1.4 trillion will be allocated for steps to bolster industrial competitiveness, including subsidies to encourage investment by smaller companies, government officials said.
About ¥600 billion will be earmarked for cash benefits to those on low incomes, people with children and home buyers, as well as about ¥300 billion for employment measures for women, the young and the elderly.
The government will also allocate ¥3.1 trillion to promote support for evacuees affected by the crisis at the Fukushima No. 1 nuclear complex and to cover the abolition of a special corporate tax surcharge, introduced to fund post-quake reconstruction work, one year earlier than scheduled at the end of next March.
In addition to the package, the government will carry out a ¥1 trillion tax cut to invigorate business investment and encourage companies to raise wages.
To fund the package, an extra budget for the current fiscal year through next March will be compiled as early as Dec. 12, sources said.
Pledging to achieve fiscal consolidation, the government has no plan to issue additional bonds, as the country’s tax revenues in fiscal 2013 are likely to reach ¥45.4 trillion, about ¥2.3 trillion more than its January estimate.