Prime Minister Shinzo Abe’s Cabinet on Saturday endorsed an economic stimulus package worth around ¥3.5 trillion aimed at revving up rural parts of the nation beset by inflation caused by the April 1 consumption tax hike and the yen’s plunge under “Abenomics.”
One pillar of the stimulus package is a new subsidy scheme designed to offset fuel costs and help towns, villages and prefectures carry out steps to invigorate their communities at their own discretion.
Abe’s deflation-busting growth program, based on drastic monetary easing and massive fiscal spending to stoke 2 percent inflation, and the elusive structural reforms, have improved the profitability of export-oriented manufacturers and doubled Japanese stock prices since he took office in December 2012.
But critics say that Abenomics, as his policy is known, only helps big exporters and wealthy people in large cities, putting pressure on Abe to juice provincial areas as well.
Analysts say the package is likely to prop up demand, given Abe’s decision to delay the October 2015 completion of the doubling of the sales tax to 10 percent, by 18 months.
But the stimulus package, which also entails steps to strengthen disaster prevention and shore up the lethargic housing market, is smaller than the ¥5.5 trillion program compiled in December 2013 to cushion the blow from the April 1 first stage of the tax hike, amid budgetary constraints.
While Abe is keen to boost the so-called regional economies before quadrennial nationwide local elections next spring, most of the proposals in the package are neither new nor eye-catching, and the benefits might be limited, some pundits say.
The Cabinet is slated to approve an extra budget for fiscal 2014 to fund the stimulus package on Jan. 9. By using unspent money from the fiscal 2013 budget and tax revenue from the current fiscal year, the government will try to finance the supplementary budget without issuing new debt, which is being bought the Bank of Japan anyway.
Japan’s economy slipped back into yet another recession after shrinking for a second straight quarter through September after the 3-point consumption tax hike to 8 percent in April.
Moreover, the sharp depreciation of the yen has been driving up import costs and energy prices at home, hurting households and small and midsize businesses, particularly those in rural areas.
About ¥1.2 trillion of the stimulus will be earmarked to support consumers and companies, ¥600 billion to revitalize local communities and ¥1.7 trillion to bolster disaster prevention and recovery.
The central government will dole out ¥420 billion in subsidies to municipal offices facing economic stagnation and depopulation, with ¥250 billion to be used to issue regional merchandise coupons or subsidize fuel expenses, and ¥170 billion to be spent on measures to induce or entice migration to non-urban areas.
In an oft-used strategy, some ¥300 billion will be allocated to public works projects, which it sees as having an immediate — if short-lived — impact on the economy.
To bolster the real estate sector, Abe’s administration will resume the “housing eco-point” incentive program, which grants points to people who build or refurbish homes with environment-safe features.
The points are exchangeable for eco-friendly products or gift coupons.
To improve the child-care environment, the government will set up facilities in 50 cities, towns and villages where parents can consult experts such as nurses and social workers about problems ranging from pregnancy to child-raising.
The package also includes a program offering subsidies to rice farmers who cut production costs, firms engaged in rebuilding areas damaged by the March 2011 disasters, and expressway firms offering toll discounts, as well as grants to aid firms’ financing.