The central government on Tuesday approved its largest economic relief package ever, aiming to alleviate the economic pains inflicted by the coronavirus pandemic and reinforce the safety net for struggling companies and households.
Given that COVID-19 is crippling business activities and threatening employment, experts say the overall concept of the rescue package worth ¥108 trillion is on target, as the amount of the stimulus is equal to about 20 percent of the country’s gross domestic product and it highlights defensive moves.
The experts, however, are split on one of the key policies designed to help beleaguered households by providing them with ¥300,000 each. Some economists say the financial aid should be focused on those in serious need while others say the proposed measure appears to be lacking fairness and speed.
“Helping companies’ cash management, protecting employment and supporting those who have lost jobs are the top priorities for now and (the rescue package) seems to cover these points,” said Yoko Takeda, chief economist at the Mitsubishi Research Institute.
The ¥16.8 trillion supplementary budget bill that will help pay for the economic relief package mainly focuses on shielding businesses and households from the economic fallout of the coronavirus.
It will allow a one-year tax moratorium worth ¥26 trillion and spend ¥6 trillion on cash grants for affected small and midsize companies, sole proprietors and households.
Small and midsize enterprises will receive up to ¥2 million each and sole proprietors ¥1 million if their revenues have halved due to the impact of the virus. The government also plans to distribute ¥300,000 to low-income households if their annual income is estimated to decline to the level eligible for residential tax exemptions. The annual income level is ¥1 million or less for individuals and varies for households consisting of 2 or more members.
It will also give the cash to households, except for high-income homes, if the monthly salary of the head of the household has been slashed by half or more in any month between February and June and annual income is expected to fall below a certain amount compared with the residential tax exemption levels.
The monthly child allowance, which is typically ¥10,000 to ¥15,000, will reportedly be raised for June by ¥10,000.
In addition, the supplementary budget bill includes measures to increase employment adjustment subsidies and expand opportunities for companies to get interest-free unsecured loans for several years.
Because the coronavirus has effectively curtailed people's mobility, policies to stimulate demand — such as public works — aren't viable, so experts say the package more or less hits the mark.
Moreover, the scale of the package — nearly double that of the ¥56 trillion package crafted to counter the global financial crisis in 2009 — sends out a solid message that the government is taking the situation seriously, they said.
But they shared mixed opinions on the ¥300,000 aid program for affected households.
Takeda said limiting the benefits to households suffering from income loss is necessary at this point.
“I think it’s a role of the government to prepare the safety net for people who are seriously in need,” she said.
There were media reports that the government was considering the cash program for all individuals, but Takeda said it would be ineffective, since unaffected people will likely just put it in savings under the current circumstances.
Finance Ministry officials said the cash can be distributed to about 13 million households.
“It’s probably difficult to distribute ¥300,000 to everyone, so the government has to draw the line somewhere. I think this line is convincing to a certain degree,” said Hideki Matsumura, chief economist at the Japan Research Institute.
Since speed is of the essence, it’s sensible that the procedure to receive the benefit is based on self-reporting rather than the government taking the initiative to select who is eligible, Matsumura said.
“I think the package this time seems to reflect lessons learned from the failed measure for the Lehman shock,” Matsumura said of the 2009 cash handout program, which provided ¥12,000 for everyone.
“That was too slow and too little,” he added.
Finance Minister Taro Aso, who was prime minister at the time, also said during a recent news conference that the 2009 cash program was a failure.
Other experts, however, are skeptical about the latest cash program.
“The safety net is of course important,” but the ¥300,000 cash handout to limited households “is not that cost-effective,” said Shunsuke Kobayashi, senior economist at the Daiwa Institute of Research.
It will likely stir up controversy in terms of fairness, since there will be households whose income has plunged but not enough to be eligible for the cash aid, while there will be people who will take advantage of the policy, Kobayashi said.
Even though the procedure will be based on self-reporting, the government will have to do some screening, which will take time, he added.
“I wonder if the cash benefit will quickly reach people who are having a tough time making their living now,” he said, adding it would be more effective to beef up the current safety net, such as boosting the unemployment allowance.
Former Miyazaki Gov. Hideo Higashikokubaru expressed concern that so many people will flock to municipal offices to request the benefit that officials will be overwhelmed.
“I think this is a totally foolish policy,” Higashikokubaru said during a Fuji TV program Monday.
He said a cash handout targeted at everyone should be much simpler and easier to distribute with government checks.
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