Counting the cost of Japan's COVID-19 fight

Ever since COVID-19 was declared a pandemic three years ago, the fight against the disease and its consequences has been the top priority for Japan, which poured trillions of yen into vaccines, the health care system and financial aid to individuals and businesses.

But Japan has downgraded the legal categorization of COVID-19 this week to the same level as seasonal flu, putting an end to various coronavirus measures.

For some, this may prompt the question of how much taxpayer money was used for such measures over the past three years, and was the spending justified?

According to a budget inspection report by the Board of Audit of Japan released last November, the government had allocated about ¥94.5 trillion ($701 billion) for 1,367 projects between fiscal 2019 and fiscal 2021, which ended March 2022. The size of the COVID-19 budget is close to Japan’s fiscal 2018 total annual budget, which was ¥97.7 trillion.

Of the ¥94.5 trillion COVID-19 budget, about ¥76.5 trillion had actually been spent, which amounts to about ¥637,000 ($4,725) per person. Around ¥13.3 trillion was passed on to fiscal 2022 while ¥4.7 trillion turned out to be unspent. For fiscal 2022, ¥5 trillion reserves were set aside for COVID-19 measures.

Because it was hard to predict what would happen when COVID-19 began its rapid spread during the first half of 2020, it's understandable that the government set aside a huge budget for it, said Motohiro Sato, a professor at Hitotsubashi University and an expert in finance.

“Even if the government might have prepared an excessive budget amount for various things, some of which might have been unnecessary. ... I think it was unavoidable at that point,” said Sato.

In fiscal 2020 alone, the government crafted three supplementary budgets with a total of ¥77 trillion. This included the second extra budget that needed ¥31.9 trillion in spending, which was the record figure for a single supplementary budget at that time.

This was more than double the size of the economic stimulus package the government prepared following the 2008 global financial crisis, which was ¥15.4 trillion.

In the following fiscal year, the government then introduced another supplementary budget with a fresh record spending of ¥36 trillion, about ¥18 trillion of which was allocated for COVID-19 measures.

Subsidies to individuals, businesses and hospitals

An array of policies to cope with COVID-19 focused on providing subsidies for individuals and companies that were suffering financially from the pandemic.

For instance, the government bolstered employment adjustment subsidies to cover up to 100% of leave allowances for small and midsize firms if they furloughed their workers. To help these firms and other solo proprietors, it also provided financial support if their monthly sales had dropped significantly.

The government also spent ¥12.8 trillion to fund a controversial ¥100,000 cash handout program for all individuals, including foreign residents.

Beefing up the health care system was also an urgent priority, so the government offered subsidies to hospitals that secured beds for COVID-19 patients while it procured and provided free vaccination shots as well.

While these measures helped to fend off the impact of the coronavirus, it also created some problems, including numerous cases of fraud, with people concocting false reports of their situation to receive money.

According to the Ministry of Economy, Trade and Industry (METI), 1,880 people illegally obtained money that was marked for freelancers and small and midsized businesses, totaling ¥1.9 billion as of April 27. The ministry says 1,464 people returned the money.

As for financial support for hospitals that shored up capacity for accepting COVID-19 patients, the Board of Audit of Japan’s inspection found that an excess of about ¥5.5 billion was provided. The board cited a lack of understanding of the subsidy system among hospital operators as well as lax examinations by prefectural governments as causes.

“Problematic aspects (of the various subsidy programs) were becoming more apparent (as time passed), so the government could have narrowed down the target recipients or reevaluated the scale of the budgets,” Sato said.

He added it was also doubtful that the boosted employment adjustment subsidy program should have continued up until March this year, since Japan’s economy had more or less returned back to normal, saying that continuing the program might have “impeded liquidity in the labor market.”

“It seemed that the government was unable to change gears and continued on with crisis mode.”

Funds to municipalities

Some issues arising from the way in which financial aid was distributed to local municipalities has also come under the spotlight.

Dubbed as Extraordinary Regional Revitalization Grants, the government came up with an over ¥15 trillion budget between fiscal 2019 and 2021.

As long as the grants were spent for preventing COVID-19 infection or countering the economic fallout, municipalities were basically allowed to use them freely, but a number of projects stirred controversy regarding whether they were appropriate or effective.

For instance, the town of Mihama, Mie Prefecture, spent ¥3.6 million for a tractor to level the grounds of sports fields so that people would not have to do it manually, allowing them to avoid getting close to each other and preventing infection.

A giant squid statue in the city of Noto, Ishikawa Prefecture also sparked controversy, as it was constructed using ¥25 million in COVID-19 funds. The city says it was intended to promote consumption of squid — a local delicacy — and tourism, once the pandemic was under control. Yet the huge monument drew media attention from both at home and abroad as a possible case of fund misuse.

Naoki Inose, an Upper House lawmaker from Nippon Ishin no Kai, asked Prime Minister Fumio Kishida during a parliament session in March if the unprecedented scale of ¥15 trillion grants was appropriate.

“Didn’t it give local municipalities incentives for lavish spending?” Inose asked.

Kishida argued that the COVID-19 funds were necessary to support local municipalities and counter the impact of the pandemic, adding that the funds had rules in place to limit spending to COVID-related purposes.

Inose stressed the need to launch an independent third-party investigation to thoroughly scrutinize the scale and use of COVID-related budgets.

Kishida responded that the fight with COVID-19 isn't over yet, so continuous reviews will be needed. But he appeared reluctant to form an independent third-party investigation.

Spending mindset

What is concerning now is that the government — already facing a snowballing amount of public debt — might have become accustomed to such crisis mode spending and that its fiscal discipline may further loosen.

Due to COVID-19's downgrade, various measures have ended or will be downsized, so the government will no longer have to spend so much money.

But “we don’t know whether the size of the overall budget will be trimmed down,” Sato said.

“Will the government refrain from drafting a large-scale extra budget this fiscal year? We can’t be sure. People are now used to such a massive stimulus.”