Reinvigorating coronavirus-hit economy will be long-term task for Japan despite huge stimulus measures

29-May-2020 Intellasia | JapanNews | 6:02 AM Print This Post

The government is bracing for a long-term battle against the impact of the novel coronavirus outbreak and is throwing truckloads of money at projects designed to shore up the economy and strengthen the medical system.

The Cabinet approved Wednesday a draft second supplementary budget for fiscal 2020 that will boost the total size of measures implemented to tackle the coronavirus outbreak and its impact to JPY 233.9 trillion an amount equivalent to about 40 percent of Japan’s gross domestic product. The second extra budget is designed to help businesses stay afloat, maintain employment and strengthen support for front-line medical facilities.

“We think the most important point is that this budget will reinforce the areas that had been lacking,” Finance minister Taro Aso said to reporters on Wednesday.

Since the outbreak began, many small and midsize companies have seen nosediving sales compounded by the heavy financial burden of paying essentials such as rent and personnel costs. In the first supplementary budget, the government sought to alleviate these problems through steps such as offering these companies a subsidy of up to JPY 2 million to help them stay in business and requesting that rents be lowered. However, landlords also were struggling amid the pandemic, so the calls to reduce rents made little headway. Consequently, after discussing the matter, the ruling and opposition parties included a “rent support subsidy” of up to JPY 6 million in the second supplementary budget.

The government had eased the criteria required for companies to receive an “employment adjustment subsidy,” which covers some of the leave allowances businesses pay to employees, but despite it all, the complicated and time-consuming procedures involved in receiving the payout resulted in few companies actually using the system. The government plans to relaunch this system by lifting the upper limit paid per day and allowing employees to apply for and receive the subsidy on their own.

There was a surge of applications for a reduction or waiving of university tuition fees, as students with part-time jobs saw their income drop and others received smaller remittances from their parents. As a result, the government has ramped up funding for these programmes.

“The situation is changing all the time and unexpected problems pop up,” a senior finance ministry official said. “It’s simply a matter of trial and error.”

The first supplementary budget contained emergency measures to address the most tangible concerns in people’s daily lives, and it included measures that would stimulate demand after the virus had been brought under control. This aimed to bring about a sharp economic rebound. However, anemic economic conditions are now expected to continue for a prolonged period. The second extra budget features policies designed to shore up the economy’s foundations.

Financial support measures will not only expand effectively zero-interest, no collateral financing to help companies improve their cash flow, but also reinforce their capital. At a time when a rapid recovery in sales is not on the horizon, companies are reluctant to take on more debt.

Having more capital makes it easier for companies to access new financing sources. It could also reduce the risk of being taken over by an overseas company.

The second supplementary budget also galvanises the nation’s preparedness for a possible second wave of coronavirus infections. This budget sets aside JPY 2.2 trillion for so-called urgent comprehensive support subsidies used to strengthen the medical care provision system about 15 times the amount earmarked in the first extra budget. This guarantees hospitals that secure beds in a dedicated ward or elsewhere to take in coronavirus patients will receive revenue even if these facilities are not used. Financial support also will be provided for purchasing ventilators and oxygenators.

This budget was compiled at a time when it is difficult to predict far ahead. Even so, as pressure to increase government spending mounts, verifying whether this money has been appropriately allocated will become a pressing issue.

The urgent comprehensive support subsidies include reward payments of about JPY 100 billion to hospitals and medical clinics. This came in response to claims by the Japan Medical Association that hospital finances were deteriorating because many people were refraining from visiting their doctor for medical checks during the pandemic. The payments will even be given to ear, nose and throat clinics, and others, that do not even examine coronavirus patients.

The first extra budget contained a JPY 1 trillion extraordinary subsidy to revitalise regional areas. This was for local governments to spend and no restrictions were placed on how the money should be used. Although this money has not been distributed yet, there has been a chorus of demand from local governments wanting this amount boosted. This has furrowed some brows in the finance ministry.

“Simply saying ‘there’s not enough money’ when just how much is needed hasn’t even been scrutinised is getting the priorities backward,” a finance ministry official said.


Category: Japan

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