The administration of Prime Minister Shinzo Abe unveiled last week an economic package of COVID-19 measures, but the central government has, so far, been unwilling to support direct compensation for firms that agree to shut down at its request under his state of emergency declaration.
Last Tuesday, Abe said it was “impossible” for the government to directly compensate losses among individuals and entrepreneurs, giving the example of government being unable to make up for lost sales at high-class bars and nightclubs.
But regional governors have rebuked the government over its hesitance to take the initiative with a bold financial measure, leaving many business owners no choice but to continue operations amid the pandemic. Despite the government’s plea to drastically cut back people-to-people interaction, many firms feel forced to put employees’ lives at risk to keep making a livelihood.
“If the government is using its authority to make such a request of the private sector, we should offer compensation as a package,” said Osaka Gov. Hirofumi Yoshimura on Monday. “The central government should be doing so. This is negligence by lawmakers.”
Public finance experts say it is difficult to ascertain individually the true value lost when a business suffers due to COVID-19. While the administration has set out a series of other financial measures within its economic plan, they say those measures are complicated and time-consuming.
“Even if the government wants to compensate, it’s hard to know how much money a business loses due to a suspension … so the government could only go so far to compensate for a rough estimate with a cap,” said Toshihiro Ihori, a public finance professor at the National Graduate Institute for Policy Studies. “Even in the case of an earthquake, it’s difficult to accurately calculate how much damage a business has suffered.”
The central government has introduced an array of measures under the emergency economic plan offering alternative forms of compensation for business suspensions, including cash disbursements that add up to about ¥6 trillion.
Under the plan, the government will pay ¥300,000 to individual households where incomes have been halved due to the virus outbreak or cut to a level that would allow the household to qualify as exempt from paying residential tax.
For businesses, the central government says it will provide up to ¥2 million in relief for small businesses and ¥1 million for owner-managed businesses, including freelancers whose sales have dropped by half or more compared to last year.
Additionally, the central government has relaxed the application criteria for employment adjustment subsidies, a monetary support program aimed at employers who have retained staff by allowing them to take paid leave.
Under the revised rules, the government expanded its monetary support by 90 percent for small businesses and 75 percent for large corporations as long as employers don’t terminate employees. Employees eligible to take time off while still getting paid have also widened to part-time workers and contractors.
But the application process is laborious and time-consuming, said Ihori. According to the health ministry, 214 applications have been made between February and April 3 for the employment adjustment subsidy. Aid has been provided for only two.
Since the burden of making the application falls to employers, critics worry that they may not take advantage of the program and will instead just lay off employees.
Last Friday, health minister Katsunobu Kato said the ministry would simplify the application process by reducing the amount of paperwork required.
“With these measures, we’re working to shorten the time it takes between application and payment from two months to a month,” Kato said.
Frustrated by the slow process, some prefectures have decided to take matters into their own hands.
Tokyo, Kanagawa and various municipalities that can afford it have either announced their own subsidies already or plan to do so, to help businesses stay afloat. But many prefectures are struggling to provide such financial aid, pressing the central government to step up.
Tokyo Gov. Yuriko Koike and the central government were at loggerheads over how extensive a request to close down businesses should be.
While Koike opted for a rapid response, closing down vast sectors, the government worked to coax the Tokyo Metropolitan Government to slow down in order to minimize the economic impact, concerned that it may become liable to pay compensation.
In the end, Koike said Friday that Tokyo would draw up its own compensation for ¥500,000 or ¥1 million. Osaka Prefecture announced a similar financial rescue plan Wednesday.
Despite the plea from the National Governors’ Association to do more financially, the finance ministry has been adamant about not loosening its purse strings.
The same day as Koike’s announcement, Finance Minister Taro Aso caused a stir with speculation — in a somewhat nonchalant tone — that Tokyo would be able to pay compensation “because it has money,” but questioned whether others would be able to do the same.