To galvanize an economy still reeling from the pandemic, Prime Minister Fumio Kishida’s administration approved a massive ¥55.7 trillion stimulus package Friday that includes support for struggling firms and controversial ¥100,000 handouts for children.

While the stimulus covers a range of policies and also includes reinforcements for a battered health care system ahead of a possible sixth wave of COVID-19 cases, many economists have raised doubts over whether it will help shore up the economy, saying some measures amount to pork-barrel spending.

The massive outlay will be funded by a ¥31.9 trillion fiscal 2021 extra budget while other costs will be included in the budget for fiscal 2022, which ends in March 2023. The total also includes spending by local governments, pushing it past the ¥48.4 trillion emergency stimulus compiled in April last year.

The extra budget will be deliberated in an extraordinary parliamentary session slated to be convened in December. The ruling parties hope to pass the bill by the end of the year.

The size of the government’s direct fiscal spending came as a surprise for economists, as it was previously reported to be around ¥30 trillion to ¥40 trillion. Some wonder if the staggering final figure is simply meant to wow the public.

“The stimulus seems to be laden with pork-barrel spending. The size may be massive, but I think it won’t be that effective,” said Shinichiro Kobayashi, economist at Mitsubishi UFJ Research and Consulting.

“Since the timing to draft this economic package overlapped with the Lower House election (on Oct. 31), politicians made a promise to prepare an extra budget and touted lavish spending to reinvigorate the economy to win votes.”

One policy that has sparked controversy in recent weeks is a plan to distribute funds to families with children age 18 or younger. A total of ¥50,000 is set to be paid in cash and the rest in vouchers to each child living in households where the higher-earning parent makes less than ¥9.6 million annually.

The policy, which will cost around ¥2 trillion, was proposed by Komeito, a junior coalition partner of Kishida’s Liberal Democratic Party, as a Lower House election campaign pledge.

Komeito’s initial idea was to make all households with children 18 or younger eligible, but the LDP pushed back, saying that there should be an income cap. During the election campaign, the LDP pledged to financially support those suffering from the economic fallout of the pandemic, but didn't outline a concrete plan.

The parameters of the income cap itself might confuse some families. Even if parents’ total income amounts to ¥15 million annually, such households will be eligible as long as each makes under ¥9.6 million. As a result, about 90% of households with children 18 or younger are eligible.

“The purpose of this policy is ambiguous … whether it’s intended to counter poverty, support child-rearing families or stimulate the economy,” said Saisuke Sakai, senior economist at Mizuho Research and Technologies.

If the program is aimed at boosting consumption, then just like the ¥100,000 universal cash handouts last year, it’s unlikely to be fruitful, Sakai said.

The government distributed ¥100,000 in cash to all citizens as an economic measure back then, but MoneyForward Inc., a budget-managing app operator, said about ¥70,000 probably went to savings, based on its users’ data.

Although the rate of new infections has dropped dramatically over the past several weeks in Japan, risks still remain and consumers are still not motivated to spend, said Kobayashi of Mitsubishi UFJ Research and Consulting. “After all, even if they receive money, it will likely end up going into savings, just like the ¥100,000 cash handout last year, unless they feel that they are in the right environment to spend,” he said.

If the policy is meant to support child-rearing households, offering a one-off payment of ¥100,000 will not be enough, Sakai said, adding that such policies should be crafted with a medium- and long-term perspective covered by the main fiscal budget rather than an extra budget. In that sense, “the program is quite insufficient in any point of view and leaves a lot of people with a sense of dissatisfaction,” he added.

Kishida ran for LDP leadership and in the general election on a platform to narrow income gaps, saying that while the economy had grown under longtime Prime Minister Shinzo Abe, the gap between the rich and poor had widened and the fruits of that growth had been unequally distributed.

The ¥100,000 cash handout doesn’t necessarily contribute to a better distribution of wealth, and the stimulus package will likely be financed by issuing deficit-covering bonds rather than those “existing fruits of growth,” as Kishida had hoped.

The stimulus package also covers a wide range of other policies. To fight the COVID-19 pandemic, the government is expected to spend ¥22.1 trillion to reinforce medical systems and infection prevention measures. The government will also continue to shore up the safety net for companies impacted by the pandemic. It will offer up to ¥2.5 million to struggling small and midsized firms while offering employment adjustment subsidies to encourage them to keep jobs.

Moreover, ¥19.8 trillion will be allocated for the launch of so-called “new capitalism” — a phrase Kishida has been using, which is a shift from the neoliberalism policies that Japan has embraced for the past few decades.

The government plans to introduce policies such as setting up a ¥500 billion fund for economic security, facilitating digitalization and increasing wages of nurses and caregivers.

Information from Kyodo added

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