The government has compiled a fresh economic stimulus package worth ¥73.6 trillion, Prime Minister Yoshihide Suga said Tuesday, amid an increase in virus cases and a slide in support for his Cabinet that are providing an early test of his leadership.
The package, which was approved by the Cabinet Tuesday evening, includes extensions of subsidy programs aimed at promoting domestic travel, spurring consumption and helping companies maintain employment, as well as incentives for digitalization and carbon reduction, according to officials.
"We will maintain employment, keep businesses going, revive the economy and open a path to growth including through green and digital technology," Suga said at a meeting of the government and ruling parties.
The new stimulus package will include fiscal spending — typically, loans, investment and spending — worth around ¥40 trillion, Suga said in the meeting.
The package is the first drawn up to fight the pandemic since Suga took office in mid-September. It comes as Japan has seen record numbers of new coronavirus cases, seriously ill patients and daily death tolls in recent weeks, raising concern over the strain on medical systems.
While revised growth figures out Tuesday morning showed that the economy surged back in the third quarter at a faster pace than first estimated, record infection numbers are likely to cool the consumer spending that helped drive the recovery in the summer. If voluntary restrictions on movement and activity continue to re-emerge in Japanese cities, the effect on spending could deepen.
Suga faces the challenge of showing he can successfully maintain the economy’s momentum while simultaneously containing the virus until vaccine options become readily available.
Boosting consumer spending will be tricky. A popular travel subsidy program that Suga has strongly defended as one of his most effective stimulus policies has come under fire for potentially worsening the spread of the virus.
Launched in July, the government's Go To Travel subsidy campaign will continue until June next year, beyond its original end date of late January. The stimulus package showed additional budgeted spending of ¥1.35 trillion on the travel program.
The government will extend until late February a special measure to boost financial assistance to companies that have been forced to furlough employees due to worsening business conditions amid the pandemic. The measure was due to expire at year-end.
The government will also increase subsidies to help local governments make up for losses suffered by restaurants and bars that comply with requests to shorten their operating hours. Financial support for medical institutions will also be raised so that they can secure more beds for COVID-19 patients.
The latest measures are smaller in scale than the funding seen in two extra budgets so far this year. Those budgets added ¥58 trillion of additional spending equivalent to around 11.3% of the size of the economy.
Overall, the measures unveiled by Suga’s predecessor Shinzo Abe came to ¥234 trillion after including loans, investment and private sector initiatives.
Suga’s Liberal Democratic Party had called for a fresh package this time to help fill a ¥34 trillion shortfall of demand in the economy.
The breakdown for the ¥40 trillion of fiscal measures in the draft of the stimulus package shows the following:
- Around ¥5.9 trillion for virus containment measures.
- Around ¥18.4 trillion to support structural changes toward a post-corona economy.
- Around ¥5.6 trillion for disaster management, reduction measures.
- Around ¥5 trillion from fiscal year 2020’s reserve funds.
- ¥5 trillion from fiscal year 2021’s reserve funds.
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