The Kishida Cabinet has approved a new comprehensive economic stimulus package worth over ¥17 trillion JPY ($113.8 billion USD). It includes cuts in income tax and resident tax. To fund part of the spending, the government plans to compile a supplementary budget of around ¥13.1 trillion JPY ($87 billion USD).
Prime Minister Fumio Kishida's administration believes that now is the time to overcome high prices and transform the economy through increased wages and aggressive investment. They would like to use the proposed stimulus package as the opening salvo of that process.
What Japan Really Needs
The main focus right now should be to fundamentally review existing systems and regulations. Along with that, structural issues such as population decline and low labor productivity should be addressed. Instead, we are being offered a traditional exercise in pork barrel spending.
The economy is in the process of recovering from the worst of the COVID-19 disaster. The lack of demand, which was the argument for conventional large-scale economic measures, has also been eliminated. Therefore, this is not the right time to stimulate demand more than necessary with tax cuts and special benefits.
No wonder the public can see that the real motivation of these economic policies is to get them in a happy mood. The Prime Minister should also take more seriously the harsh scrutiny being directed at him.
What's in the Latest Stimulus Package
The heart of the proposed tax cut is a flat-rate tax cut totaling ¥40,000 JPY ($268 USD) for income and resident (inhabitant) taxes combined. There is an additional benefit of ¥70,000 JPY ($470 USD) for low-income households.
This is intended as a "temporary measure" in light of the current situation where wage increases are not keeping pace with higher prices. However, since the tax cuts will not take effect until June 2024, they will not be effective as a measure for dealing with the problems we face right now.
Or does the government still believe that promised wage increases in the spring labor talks (shunto) will prove insufficient by next June?
Needed: An Economic Structure for the Future
There's also the question of whether a temporary tax cut will prove enough. The Prime Minister has indicated that he will not seek tax increases in FY2024 to strengthen defense. That is to avoid the simultaneous implementation of tax increases and tax cuts.
But avoiding prolonged tax cuts is just as important. Protracting the cuts would make it difficult to secure stable financial resources to support the nation's defense capability.
The proposed measures also include continuing subsidies to keep a lid on gas prices at the pump, as well as electricity prices. But instead of just continuing to stumble along in a daze like this, we should be working to build an economic structure that can withstand high oil prices.
Other items on the agenda include investment promotion and building national resilience against disasters.
It boils down to a question of policy effectiveness. The initial budget for FY2024 is now being compiled. It should be finalized based on the principle of efficacy.
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(Read the editorial in Japanese.)
Author: Editorial Board, The Sankei Shimbun