Japan Extra Budget May Soar as Costly Economic Measures Eyed; Steps to Deal With Soaring Prices a Key Pillar of Package

The Yomiuri Shimbun

1:00 JST, October 19, 2023

Prime Minister Fumio Kishida is expediting efforts to draw up an economic policy package at the end of this month, based on proposals submitted by the ruling Liberal Democratic Party and its junior partner Komeito on Tuesday.

The prime minister is expected to decide what to do regarding income tax cuts, which members of the ruling parties are calling for, after closely watching the response from the public.

The government’s spending for economic stimulus measures has remained high since the beginning of the coronavirus pandemic.

For the planned economic policy package, the government is considering including measures that would require significant fiscal resources, including steps to deal with soaring prices and benefits for low-income earners. Kishida has positioned countermeasures against high prices as the main pillar of the package.

As a result, there is growing concern that fiscal discipline will be given low priority and pork-barrel spending will once again take place.

In their proposals, the LDP and Komeito called on the government to continue gasoline, natural gas and power subsidies. These measures are expected to be extended at least to the end of March next year from the end of this year, which would require additional budget spending of trillions of yen.

On Monday, Kishida expressed his intention to include in the economic package subsidies for local governments that take steps, tailored to the situation in their particular area, to combat high prices. The prime minister has also instructed government officials to include measures to address such issues as hay fever, dementia and the sexual abuse of children. All these measures could further inflate the scale of the government budget.

In fiscal 2020, the supplementary budget with general account spending soared to ¥73 trillion to cover expenses to tackle the coronavirus. The scale of the supplementary budget has since remained at high levels: ¥36 trillion in fiscal 2021 and ¥31.6 trillion in fiscal 2022.

Nearly 80% of the spending in the fiscal 2022 second supplementary budget was covered by government bonds, as tax revenues were not sufficient.

Kishida has said he will “give the benefits of tax revenue increases to the people” as part of the government’s economic stimulus measures. Tax revenues in fiscal 2022 reached a record high of ¥71.1 trillion, about ¥6 trillion higher than an initial estimate. The prime minister apparently made his statement in expectation that tax revenue increases would continue in the future.

However, the total amount of tax revenues in fiscal 2023 through the end of August was ¥14.2 trillion, a drop of about 10% from the same period a year ago. The decline resulted from changes in the corporate tax payment system and other factors.

“Tax revenue increases like last year cannot be expected,” a senior official of the Finance Ministry said.

In June, the government approved the annual Basic Policy on Economic and Fiscal Management and Reform. The plans underscored the government’s intention to return its expenditure structure to one suited to normal times.

Contrary to Kishida’s expectations, tax revenue increases are believed to be unlikely, and the government’s economic policy package may have to be financed through the issuance of deficit-covering government bonds.