To combat the deepening economic crisis, Prime Minister Taro Aso on Friday unveiled an additional stimulus package that calls for record actual spending of ¥15.4 trillion, or 3 percent of the country’s gross domestic product.
Financed by a fiscal 2009 supplementary budget, the overall size of the package is worth more than ¥56.8 trillion on a project basis, including increased government guarantees for possible losses on private-sector loans for small and midsize companies.
Part of the financing would come from new state bond issuances worth about ¥10 trillion, bringing the total amount of new bonds to more than ¥40 trillion, also the largest-ever.
“This is designed to cope with the economic crisis,” Aso told a news conference. Emphasizing the seriousness of the difficulties facing the rapidly-shrinking Japanese economy, he also called on opposition parties to cooperate in getting the budget quickly passed through the Diet.
The three goals of the package, Aso said, are to prevent further economic deterioration, to bolster job security and to invest in the country’s future economic growth.
Under the newly announced package, the government earmarked ¥3 trillion for corporate financing, ¥2 trillion for health and child-rearing assistance that includes annual benefits of ¥36,000 for children aged 3 to 5, and ¥1.9 trillion in employment support.
The package also includes ¥1.6 trillion in incentives for consumers to purchase energy-efficient cars and home appliances.
No gift tax will be imposed on up to ¥5 million passed to offspring from their parents to purchase a home.
Aso also said that over the long term, the government must reduce snowballing government deficits and the financial burden on future generations.
He once again stressed that the government will carry out tax reforms, hinting at a hike in the unpopular consumption tax, to boost tax revenues and rebuild fiscal soundness of the national coffers when the economy begins to recover.
While praising the size of the spending, experts remain skeptical of its long-term effects and expressed their concerns over increasing the burden on future taxpayers.
Yasunari Ueno, chief market economist at Mizuho Securities Co., expects the large-scale package to help prop up the ailing economy.
“Since money equivalent to 3 percent of gross domestic product will be spent, there will be certain boosting effects” to the economy, Ueno said.
Keisuke Naito, senior economist at Mizuho Research Institute Ltd., also praised the package overall.
“The package has been relatively well compiled, since it features the environment and disaster countermeasures, directions that will be needed in the future,” Naito said. “Also because the scale is big, it will have some effect on supporting the economy for the time being.”
Believing it difficult now to attain fiscal reconstruction amid the recession, Naito noted the unprecedentedly large-scale spending indicated the government has temporarily suspended its austere fiscal policy initiated by former Prime Minister Junichiro Koizumi, who was in office from 2001 to 2006.
“Since the economic environment has rapidly worsened, fiscal reconstruction had to be delayed,” Naito said. “Once the economy recovers, the fiscal reconstruction line will have to be there.”
On a fiscal basis, Japan’s condition is among the worst of the world’s major developed countries. The balance of the nation’s outstanding debt was forecast to reach around 170 percent of GDP in 2008.
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