Prime Minister Shinzo Abe’s attempt to bolster the country’s moribund economy with a ¥28.1 trillion stimulus package Tuesday has experts asking whether massive government spending is really the best medicine for a country with snowballing debts.
Some economists see the fresh round of stimulus as a positive sign since it includes investments that could facilitate future growth, saying it appears to differ from past measures that tended to focus solely on short-term boosts to the economy using pork-barrel policies.
If the economic situation needs immediate support, or if a natural disaster strikes, the government should quickly draft an extra budget and implement stimulus, said Taro Saito, senior economist at NLI Research Institute. Otherwise, he said, it should refrain from doing so, given that Japan’s debts are more than 200 percent of gross domestic product.
“Of course, the economy is not in the best shape … but the employment rate is very solid and unemployment has been decreasing more and more,” Saito said.
“If unemployment is rapidly rising, the stimulus is necessary, but we are not facing such a situation,” he added.
Abe himself has been claiming that employment rates are doing well due to his Abenomics policies.
The stimulus package, dubbed “Realizing Investments for the Future,” mainly focuses on improving child-rearing and nursing-care services, building and repairing infrastructure, facilitating the reconstruction of Kumamoto Prefecture, which was hit by powerful earthquakes in April, and measuring the risks to the domestic economy of Britain’s decision to leave the European Union.
The government will spend about ¥13.5 trillion to finance the programs, which amount to a total of ¥28.1 trillion.
Specific programs include boosting wages for nursing-care workers, creating hubs in Japan and overseas to promote the export of agricultural products and supporting small- and midsize firms in hopes they will expand overseas.
Many of the programs in the stimulus, Saito said, should instead be included in the government’s main budget.
When the government complies an extra budget, officials at ministries must craft budgets quickly, so they tend to include programs that may be wasteful, he said.
Even though the government plans to spend ¥2.7 trillion on the reconstruction after the Kumamoto earthquakes as well as 2011’s Great East Japan Earthquake, it was only in May that the government passed an extra budget for Kumamoto’s reconstruction, Saito said, adding that the government may be spending unnecessarily for disaster reconstruction.
But while some economists question the need for the stimulus, others say this package deserves at least some recognition that it could aid the economy.
The government has been criticized for spending trillions of yen since the 1990s to bail out its flagging economy in efforts that have yielded only short-lasting effects.
But Shunsuke Kobayashi, an economist at the Daiwa Institute of Research, said this time things may be different.
“The stimulus has some pork-barrel programs, but it is focusing more on a long-term growth strategy,” he said.
An example of this strategy can be seen in the government’s push to improve Tokyo’s Haneda Airport and to bring forward JR Tokai’s maglev train line by up to eight years to 2037. Both, experts say, would contribute to the economy over the long term.
“In that sense, I think the policy is heading in a rational direction” and the stimulus can be seen as an investment in future growth rather than a conventional short-term measure, Kobayashi said.
He also pointed out an apparent shift in Abenomics, which is comprised of the Bank of Japan’s ultraloose monetary policy, fiscal spending and structural reforms.
Until recently, the monetary policy had been the driving force keeping the yen’s value weak and boosting the profits of large Japanese firms.
This strategy worked for a while, but amid the yen’s recent surges, Abe can no longer depend heavily on it, Kobayashi said. This is why the government is now deploying stimulus to keep Abenomics afloat, he said.
In the meantime, Kobayashi pointed out that the issue of fiscal debts cannot be ignored, and holds that it is now nearly impossible to achieve Japan’s goal of a primary surplus by 2020. The government, he said, will have to make serious efforts to cut its spending.
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