Japan unveils ambitious stimulus plan and tax breaks
The Japanese government unveiled on Friday a policy package worth about 107 billion US dollars in an effort to stimulate the country's faltering economy by easing the negative impact from rising energy and raw material costs.
The emergency package, Japan's first since 2002, centers on assistance in the form of government-backed loans and tax breaks for smaller companies and households suffering from higher gasoline and food prices. The package represents the latest effort by Prime Minister Yasuo Fukuda to prop up sluggish approval ratings for his Cabinet. "Global rises in crude oil and food prices are seriously affecting people's lives" Fukuda told a meeting of relevant Cabinet ministers. "It is necessary to watch the daily lives of ordinary citizens and quickly respond to their pain and concerns". The package involves approximately 16 billion US dollars in actual fiscal spending, for which Fukuda instructed Finance Minister Bunmei Ibuki to draw up a supplementary budget for the current fiscal year through March. Fukuda also ordered not to issue any deficit-covering bonds in an attempt to improve Japan's debt-ridden state finances. Under the policy package, the government will implement fixed income and residential tax cuts as one-year measures for fiscal 2008. The government and the ruling coalition led by Fukuda's Liberal Democratic Party will study the details of the initiative later this year. Ibuki told reporters that the government may need another extra budget to secure necessary funding for the tax cuts. Meanwhile, Fukuda told the press separately that he is not considering the issuance of deficit-covering bonds for the tax breaks. Much of the 16 billion US dollars will be allocated to assist small and midsize firms raise funds under the government-backed credit guarantee and lending program. Such firms employ 70% of Japan's workforce and account for 99% of companies in the county. We need "decisive measures" to secure people's employment, Economic and Fiscal Policy Minister Kaoru Yosano said at a news conference after the government released the package, stressing the need to rescue smaller companies. With their balance sheets hurt by rising crude oil and material costs, smaller firms are increasingly suffering from a credit crunch as financial institutions hesitate to lend them money due to fear of defaults. The policy package, identified as "emergency overall countermeasures to secure relief (for people)" sets three main goals: dispelling people's worries, accelerating reform to enable a sustainable society, and making the transition to a new price system and stimulating growth. The package also includes a discount for expressway tolls, assistance for temporary workers to find regular employment, promotion of energy saving and improvement of agricultural productivity. The stimulus package follows the government's admission in its monthly report earlier this month that Japan's economy may have entered a contraction phase, indicating that the country's longest postwar expansion, since February 2002, may have ended. The economy contracted 0.6% in the April-June period from the previous quarter, logging the first negative growth in real gross domestic product in a year.