Controversial Stimulus Plan

The Cabinet led by Prime Minister Fumio Kishida decided on Thursday to deliver an economic stimulus plan which spendings would amount to ¥17 trillion. While the plan covers broad range of the people by mixing tax cut and allowance, it is not so popular in public, and even in the leading Liberal Democratic Party, in terms of fiscal credibility and actual effects. It is too obvious for the taxpayers that the package was made for the election in which he hopes to be re-elected as the party leader next fall.

The stimulus plan includes yearly ¥40 thousand of income and residence tax cut for every taxpayer and each of its families, and ¥70 thousand of allowance for the family which income is so low that it is exempted from paying tax. Distribution of the allowance is supposed to start by the end of this year and the tax cut will be activated next June. Total spending from the national budget will be ¥5 trillion.

 

Other spendings include the policies for raising wages or promoting investment on semi-conductors or lithium-ion batteries. The government is going to submit a bill of supplemental budget, amounting to ¥13.1 trillion, to current session of the Diet. Most of the budget will be appropriated by newly issued governmental bonds. Kishida also announced extension of current subsidy for gasoline, electricity and gas to next April. He declined the idea of changing the goal of balancing primary budget by 2025.

 

In the press conference on Thursday, Kishida insisted on that the stimulus plan would take two steps, allowance within this year and tax cut for next year. “By mixing wage increase and income tax cut, I hope to create a situation that the rise of national income overtakes the rise of commodity price in next summer. Then, we can see the exit of deflation,” said Kishida. After the next summer, there will be LDP presidential election.

 

The newspapers were critical about Kishida’s stimulus plan. Editorial of Asahi Shimbun accused Kishida administration as irresponsible for depending the budgetary resource mainly on governmental bonds. Nikkei Shimbun argued that returning tax revenue to the people would be too early and cutting tax in next June too late, and tax cut and allowance might accelerate inflation.

 

In the meetings of LDP before the cabinet decision, there were some oppositions against tax cut. They argued that a temporary tax cut might not bring effective result and the people would not evaluate it so high. The opposition parties preferred allowance to tax cut, which would support high income families. Some required decreasing the rate of consumption tax, which Kishida firmly dismissed.

 

It is possibly next July when the effect of this stimulus plan will appear. Some may think that Kishida will not have a snap election until next summer, because he must be hoping to make the plan a following wind for the general election and his LDP presidential reelection bid. Approval rate for Kishida Cabinet shows constant decline. Setting the goal at next June has made his economic policy a long shot.