In a bid to limit the impact of rising commodity prices, Prime Minister Fumio Kishida’s administration will soon prepare a new economic package.
As Kishida would unveil new economic and coronavirus measures on Thursday, calls for increased public spending are mounting among lawmakers, given that Upper House elections are just months away.
Kishida last week told his ministers to use a 5.5 trillion yen ($44.36 billion) contingency fund from the fiscal year 2022 budget to draft a relief package, but some members of the ruling and opposition parties said additional budget was needed to fund larger projects. – scale measurements.
“People are actually starting to feel that the prices are going up,” said Natsuo Yamaguchi, the leader of Komeito, the junior coalition partner of the ruling Liberal Democratic Party, on Saturday.
As commodity prices have risen further due to the war between Russia and Ukraine, people are increasingly worried about how their lives will be affected, he said.
“The government has said that it will use the reserve fund from this fiscal year’s budget first, but that won’t be enough,” Yamaguchi said, adding that a new supplementary budget is due to be passed during the parliamentary session in March. course, which is scheduled until June 15.
Yamaguchi also said that 5 trillion yen from the 5.5 trillion yen reserve fund was initially set aside for the pandemic response, and it would be inappropriate to use it for countermeasures against hikes. of price.
The Komeito chief said on Tuesday that he spoke to Kishida by phone and asked him to draft a supplementary budget.
“The prime minister did not rule out the option of a supplementary budget, but said he would try to manage it with the contingency fund first,” Yamaguchi told a news conference.
Yuichiro Tamaki, leader of the People’s Democratic Party – an opposition party that has worked with the ruling bloc to formulate countermeasures to soaring oil prices – said on Tuesday extra budget was needed to fund a major boost.
While the LDP is cautious about hastily drafting a supplementary budget, former Prime Minister Yoshihide Suga, who is still an LDP lawmaker, said in a television appearance on Sunday that the government should prepare a supplementary budget rather than simply using the reserve fund.
In a meeting with ministers on Tuesday, Kishida again stressed that the government would first tap the contingency fund in order to implement measures quickly.
Local media reported that the scale of the spending is likely to reach between 1 trillion and 2 trillion yen, with the program continuing to subsidize oil wholesalers to lower retail gasoline prices and offering financial support to businesses. and households in difficulty.
Compiling policy options for a supplementary budget bill could take weeks, and yet the bill must also be approved by parliament. As a result, the government may not have enough time to implement a supplementary budget by the end of the current session.
Local media also reported that Kishida may unveil major new economic policies before the Upper House election in July and then fund them with a supplementary budget after the vote.
Whether the measures are on a smaller scale using the reserve fund or on a larger scale using a supplementary budget, some economists have pointed out that this decision appears to be politically motivated.
“Concerns about sudden price hikes among consumers are growing ahead of the Upper House elections this summer. It seems alleviating their concerns has become a political issue,” said Shinichiro Kobayashi, senior economist at Mitsubishi UFJ Research and Consulting Co.
Economists say soaring commodity prices are indeed a negative factor for the Japanese economy, but the outlook is not necessarily dim.
The Mitsubishi Research Institute (MRI), a Tokyo-based think tank, estimates that the Japanese economy will grow by 2.6% in this fiscal year, which extends to March 2023. Given that the Japan’s long-term growth potential is less than 1%, which is quite a solid number, even if it is driven by the recovery from the damage caused by the pandemic.
Given that the economy is on track to recover, “I doubt that an economic package is really needed right now,” said Akihiro Morishige, senior economist at MRI.
He added that the Kishida administration had already ushered in a massive stimulus, with a record 55.7 trillion yen in spending funded by a supplementary budget last December and this fiscal year’s budget, which was approved by parliament there. just a few weeks ago.
According to Mitsubishi UFJ’s Kobayashi, in recent years “it has become a regular habit to make new economic packages with additional budgets whenever something happens”, but the government is not supposed to rely on supplementary budgets in this way.
Additionally, despite higher than usual oil prices at the moment, the cost has eased slightly from its week-long peak after the Russian invasion began in late February.
In early March, benchmarks Brent and West Texas Intermediate were above $120 (around ¥14,900) a barrel, but prices had fallen to around $100 on Tuesday.
If the government really plans to roll out relief measures, Morishige says, then they should be designed to help people in need, as well as regions and industries that will be hit hard by high commodity prices.
For example, rising gasoline prices disproportionately affect rural areas or areas far from Japan’s largest cities, as more people have to rely on cars than in busy urban areas such as Tokyo. Therefore, subsidies should be designed to mitigate the impact on these areas.
Rising gasoline prices could also be a chance to ease the switch to electric vehicles in line with the country’s decarbonization efforts, but if the government continues to fund subsidies to reduce gasoline prices, this could go to counter to that, Morishige added.
“Economic measures should not only be aimed at countering the immediate rise in prices, they should also contribute to strengthening the Japanese economy in the medium and long term,” Morishige said.
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