Cabinet approves draft extra budget to sponsor record spending stimulus

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Prime Minister Fumio Kishida’s Cabinet approved the draft of a ¥36 trillion extra budget on Friday to fund a record economic stimulus package, which includes bolstering medical systems to counter the pandemic and cushion its economic fallout.

The total direct government spending for the stimulus is expected to be ¥55.7 trillion, with the government financing ¥35.98 trillion of it through its supplementary budget for fiscal 2021.

The budget will be deliberated in an extraordinary Diet session expected to convene on Dec. 6 with the ruling coalition aiming to pass it during what has been reported to be a 12-day session in order to swiftly roll out the economic measures.

To finance the extra budget, the government will issue new government bonds worth ¥22.05 trillion, adding an additional burden atop Japan’s public debt, which has already snowballed to about 250% of its gross domestic product.

With the supplementary budget, the government plans to spend ¥18.6 trillion to prepare for the next COVID-19 wave.

Some of the steps include booster shots and free COVID-19 tests for those who are not physically able to receive the vaccination. The government will also help secure more beds and medical personnel in case of a rapid increase of patients, as well as facilitate the research and development of vaccines and treatments.

Supporting those suffering from the economic impact of the pandemic is also a top priority.

Small- and mid-size firms hit hard by the pandemic can receive up to ¥2.5 million in aid, while continuing to offer employment-adjustment subsidies for companies to keep their employees.

The government will distribute ¥100,000 cash handouts for low-income households using ¥1.4 trillion from the extra budget, while ¥67.5 billion will be used to offer financial aid to struggling students.

In a separate policy, the government will also offer ¥50,000 in vouchers and another ¥50,000 in cash to all families with children age 18 or younger and whose higher-earning parent makes less than ¥9.6 million annually. The ¥1.9 trillion program will be funded from both the extra budget and reserves from the main budget.

This program, however, has drawn criticism from a number of economists, who characterize the aid plan as pork-barrel spending used to win votes in the Lower House election last month.

With its wide array of measures — including alleviating poverty, supporting child-rearing families and stimulating consumption — the policy has been derided by some economists as lacking a clear objective.

Many believe that most of the distributed cash will likely end up in savings accounts.

Meanwhile, ¥8.25 trillion will be spent on policies facilitating the launch of Kishida’s proposed “new capitalism.” These policies include strengthening Japan’s science and technology by establishing a ¥611 billion college fund and investing ¥110 billion into developing cutting-edge semiconductors.

As Kishida has pledged to focus on the redistribution of wealth and mitigating income inequality, the government plans to fund a wage hike for nurses, caregivers and nursery school teachers. By increasing wages of workers in the public sector, Kishida aims to pressure the private sector to follow suit.

As for measures to reboot the economy, the government will likely resume the travel subsidy campaign known as Go To Travel in January or February. About ¥268.5 billion of the supplementary budget will be used for the program.

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