The government’s announcement Monday of a record 24 trillion yen economic stimulus package failed to impress many economists, who say the success of the package depends on what will actually be done under the new framework.
Prime Minister Keizo Obuchi unveiled a stimulus package Monday featuring 8.1 trillion yen for facilitating social infrastructure, 5.9 trillion yen for easing the credit crunch, and 1 trillion yen for combating unemployment and other steps. In all, the measures are worth more than 17.9 trillion yen.
By adding massive tax cuts totaling more than 6 trillion yen to these measures, the government aims to achieve positive economic growth in the nation’s gross domestic product as early as fiscal 1999, Obuchi said.
Many economists, however, share the view that the stimulus is hardly strong enough to realize self-sustained economic recovery. They argue that the measures announced in the package could at most prevent further deterioration of the economy.
Kazuhiko Yano, chief economist of the economic research division at Fuji Research Institute, said the government is doing its utmost with the 24 trillion yen but the real test for the package will involve its specifics and further steps. “The series of measures announced are expected to offset most of the negative factors that have barred a real turnaround of the economy,” he said. “However, it is difficult to expect more from this package. Additional measures will be needed to boost the recovery process.”
Yano said the package should have specified the content of public works projects and expressed concern that new ideas in the package, such as creating fiber-optic networks and next-generation transportation systems, may end up turning into conventional projects that will only benefit general contractors. “Changing the economic structure of the nation is not the responsibility of the government alone,” he said. “In this sense, private citizens also must take part in the discussion process.”
Susumu Takahashi, chief economist of the research department at the Japan Research Institute, agrees with Yano on the need to reform the nation’s economic structure to stimulate private demand. “The real focus must be placed on whether the government implements further deregulation in coming years,” he said. “Without this second step toward realizing new ideas, the current stagnant mind of the private sector will not change.”
Masaru Takagi, professor of economics at Meiji University, expressed concern that income tax cuts in the package, worth 4 trillion yen, will provide consumers with little incentive to spend. “The government has already introduced special tax cuts twice, each worth 2 trillion yen,” he said. “Considering that those cuts failed to spur consumption, we cannot expect much from income tax cuts this time.”
Takagi stressed that the timing of introducing those cuts, which are expected in April, is rather late, arguing there might be a possible delay in the Diet in making necessary legal adjustments for the new tax system.
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