Japanese prime minister Yoshihiko Noda said Monday the government may carry out additional economic stimulus measures this fiscal year to underpin the nation’s recovery before a planned sales tax hike, in contrast to moves by other developed nations to curb spending.
“We will flexibly respond with measures including an extra budget if needed,” Noda said during a parliamentary session, suggesting the possibility of compiling a spending package later in the fiscal year that runs through March 2013.
We will flexibly respond with measures including an extra budget if needed,” Noda said during a parliamentary session, suggesting the possibility of compiling a spending package later in the fiscal year that runs through March 2013.
The comments follow calls from both ruling and opposition party lawmakers for more spending to support Japan’s economic recovery, but the possibility of further fiscal stimulus measures is likely to raise fresh questions over the government’s resolve to bring its borrowing under control.
Credit ratings firms have said that the bill to double the sales tax to 10 percent by 2015 is only a first step toward fiscal consolidation.
The two-stage tax hike is scheduled to begin in April 2014, but the government is keen to pump up the economy in advance as the bill stipulates that the cabinet will decide on whether to move ahead with the tax hikes six months before the first rise – to 8 percent – is due to come into effect.
While nonbinding, the bill says the economy should ideally be achieving 3 percent nominal growth and 2 percent real growth for the hikes to go ahead.
Debate over the bill moves to the upper house of parliament this week after passing the lower house late last month, and the bill is expected to be enacted by mid-August given the backing of the two main opposition parties.
Ruling Democratic Party of Japan policy chief Seiji Maehara told reporters last week that an extraordinary session of parliamentary should be convened to discuss economic stimulus measures after the current session wraps up in early September.
Noda’s aides have also mentioned such a plan, adding that the two largest opposition parties – with which the DPJ sealed a deal to cooperate in passing the sales tax bill through the lower house – are eager to draft an extra budget to fund fresh spending.
The main opposition party, the Liberal Democratic Party, and the New Komeito have both stressed the need to spend more on infrastructure-building and disaster-prevention.
The LDP has already submitted to parliament a package to spend JPY 200 trillion over the next 10 years largely on infrastructure against natural disasters. The New Komeito has also announced a similar plan to spend JPY 100 trillion, which it says should help boost the nation’s GDP by 2 percent each year and provide 1 million new jobs.
LDP president Sadakazu Tanigaki has countered criticism that the plan is essentially pork-barreling, stressing that it also included private sector investment and that its size wasn’t too large considering postquake reconstruction demand.
But Hideki Matsumura, senior economist at the Japan Research Institute, said public works spending has been largely ineffective.
“I can’t see how these measures will help stimulate the economy,” he said, adding that since households would be most affected from a sales tax hike, steps to boost their income were most sought after at the moment rather than increasing spending on infrastructure.