Top Finance Ministry officials on Monday raised doubts over the need for a supplementary budget to help alleviate the recession during a meeting with the nation’s most powerful business lobby.
The ministry officials, including Koji Tanami, administrative vice finance minister, met with executives from the Japan Federation of Economic Organizations (Keidanren), including Chairman Takashi Imai.
In the meeting, the officials stressed that the state and local governments have already spent huge sums on recent pump-priming measures, which rapidly worsened the government’s financial status, according to people present at the meeting.
They said the ministry officials pointed out that the central and local governments are saddled with bonds and long-term loans totaling 600 trillion yen, or 120 percent of the nation’s gross domestic product, as of the end of this fiscal year.
It would be difficult to make up for the red even if the economy continues to grow at an annual rate of 2 percent or 3 percent, the officials reportedly said.
The officials also warned that when the economy recovers, the heavy government borrowing could “crowd out” private businesses that need to borrow money by pushing interest rates higher, those present at the meeting said.
Imai did not directly disagree with the officials, but asked the government to smoothly and continuously carry out public-spending measures to support the economy, they said.
Many economists and politicians have argued that another supplementary budget should be prepared to prevent the economy from slipping again into a more serious recession in the second half of the year.
Some economists have even called for a reduction in the consumption tax to stimulate consumer spending.
But Imai argued that over the long run, the consumption tax should be a pillar to support growing expenses for social security measures, such as those pertaining to pension and health-care systems for the elderly, according to those present at the meeting.
Imai also called for early law revisions to create tax breaks to help businesses to get rid of excess production facilities.
But the ministry showed a cautious attitude, saying all bills now being prepared to help reinvigorate the economy, including those for the Commercial Code and accounting rules, should be completed first.