Subsidies alone cannot overcome soaring costs

It is important for the government to deal with high prices, but simple measures to contain rises are nothing but makeshift steps. It is hoped that the government will create a virtuous cycle for the entire economy through such measures as increasing investment and encouraging companies to raise wages.

The government has decided on a comprehensive economic stimulus package to deal with rising prices. The package will be partly funded using around ¥29.1 trillion from the general account budget under a second supplementary budget draft for fiscal 2022. The scale of the package, including private-sector and other spending, will be about ¥71.6 trillion.

The main pillar of the package is a measure to reduce the burden of bills for electricity and gas. The government will provide subsidies to electricity and gas companies to be used to reduce fees. The measure aims to ensure price reductions by requiring these companies to show customers on their bills how much their costs have been lowered.

Electricity and gas prices rose more than 20% in September from a year earlier. These rises are particularly afflicting low-income earners. It is understandable that the government is taking a step toward reducing the financial burden of utilities.

The measure will reduce electricity costs by around ¥2,800 and gas prices by around ¥900 for the average household each month. The government said it will start this program next January and run it through September.

The subsidy program for gasoline, which has been in place since this January, was initially set to expire at the end of this March. However, the deadline has been extended several times, with about ¥300 billion currently being spent per month.

Huge expenditures are also expected under the subsidy program for electricity and gas. Considering the nation’s tight fiscal condition, subsidy programs that rely on borrowing through the issuance of government bonds cannot be described as sustainable. To cushion the blow of rising prices, it is essential to raise household income.

Above all else, wage increases must be accelerated. While stressing the importance of such a move, the government has yet to present any concrete measures to achieve the goal. It is hoped that the government will implement measures that also prompt wage hikes among non-regular workers and employees at small and midsize companies such as by expanding tax breaks and subsidies.

It is also hoped that the government will strengthen measures to facilitate the smooth transfer of human resources to growth fields where high wages can be expected, such as information technology. The government also needs to further encourage corporate investment in transformational fields, such as decarbonization and digitization.

Corporate retained earnings, or the accumulation of past profits, continue to increase, and surpassed ¥500 trillion for the first time at the end of fiscal 2021. The mindset of corporate executives also needs to change so that they are more willing to allocate such surplus for investment.

It is disappointing that discussions on the latest economic package ended up merely prioritizing its scale. The Finance Ministry had initially planned for the general account spending to be about ¥25 trillion, but this figure has ballooned to more than ¥29 trillion, reportedly because of pressure from the ruling Liberal Democratic Party.

It is not the size of an economic package that is important, but rather its measures. What are effective approaches to help revive the nation’s economy? Lawmakers should deepen such discussions in the Diet.

(From The Yomiuri Shimbun, Oct. 29, 2022)