Swift agreement on benefit package achieved through compromise
November 11, 2021
The Liberal Democratic Party and junior coalition partner Komeito have reached a compromise on a benefit program that is expected to be the centerpiece of the government’s upcoming economic stimulus package.
Komeito wanted families to receive benefits of ¥100,000 for each person under 19 years old in the household. Meanwhile, Prime Minister Fumio Kishida wanted the package to have an annual household income cap to deflect criticism that it was a pork-barrel policy.
On Wednesday, Kishida and Komeito leader Natsuo Yamaguchi had a lunch meeting at the Prime Minister’s Office at which the leaders agreed on an annual income cap of ¥9.6 million.
Kishida was quick to praise the parties’ secretaries general — the LDP’s Toshimitsu Motegi and Komeito’s Keiichi Ishii — who had been leading the negotiations.
“Thanks to your efforts, we could quickly reach a decision,” Kishida said.
The agreement was reached just three days after talks began on Monday.
“When we have different positions, we hold talks and reach an agreement,” Yamaguchi said to reporters. “That’s a tradition of this coalition government, and a wise course of action.”
Kishida has bitter memories of earlier dealings with Komeito. In April 2020, when Kishida was chairperson of the LDP’s Policy Research Council during the administration of Prime Minister Shinzo Abe, he was in charge of a plan to provide ¥300,000 to households whose incomes had declined due to the novel coronavirus pandemic.
However, Kishida came under pressure from Komeito and others to reconsider the handouts.
At the last minute, the government changed tack and decided on a universal ¥100,000 handout for all residents. This sparked discontent within the Kishida faction, with many members believing both Abe and Komeito were “disrespecting” Kishida.
The latest negotiations constituted a rematch of sorts between Kishida and Komeito. The prime minister instructed Motegi that the handouts “should be distributed to people in need. I want you to make sure they don’t become pork-barrel spending.” For Kishida, establishing an income cap was a red line not to be crossed.
Tension was in the air before the secretaries general launched their discussions. Komeito had made the provision of benefits worth ¥100,000 a signature pledge during the campaign for the House of Representatives election, calling them “benefits to support the nation’s future.”
Yamaguchi continuously vowed to make the handouts universal, saying “Singling out children based on their parents’ income isn’t desirable.”
Komeito Policy Research Council Chair Yuzuru Takeuchi showed no sign the party would back down from its position on Nov. 4 when he tweeted that the cash handout has “effectively been decided, with no income cap.” He added that any makeshift measures would be “unacceptable.”
On Monday, Takeuchi told reporters that allowing the party’s promises to fall by the wayside would “be an act of betrayal to the public.”
Some officials within the Finance Ministry quietly acknowledged that the Komeito proposal “would need to be respected.” However, resistance to this plan was building within the LDP, with Policy Research Council Chair Sanae Takaichi leading the charge. Takaichi griped that the Komeito proposal was “completely at odds with the LDP policy pledge” to extend support to households in need.
To prevent a rift between the LDP and Komeito from deepening, both parties took the unusual approach of starting discussions between their secretaries general, rather than the policy research council chiefs who are responsible for party policies.
When these talks kicked off Monday, Motegi explained his party would not budge from its intention to have an annual income cap, which he suggested be set at ¥9.6 million per household.
His response was galvanized by the result of last month’s election, in which the LDP won 261 seats, giving it a single-party controlling majority in the chamber, and Nippon Ishin no Kai (Japan Innovation Party), which trumpets many policies similar to the LDP’s, had performed well.
“If Komeito keeps constantly making unreasonable demands, we should consider the option of closer cooperation with Ishin,” an LDP insider said.
Within Komeito there was a growing awareness that playing hardball could have consequences. “Forcing the LDP to swallow all our demands is going too far,” a Komeito member said.
Soka Gakkai, the Buddhist organization that is the power base behind Komeito, has taken into consideration criticism that the benefits are a pork-barrel policy, which might have influenced Komeito’s decision to accept an income cap.
In the end, Komeito accepted a compromise that, according to Yamaguchi, would mean “the benefits could be given to a majority of households.”
However, the deal was not cheered by everyone.
During the negotiations, both sides agreed that in addition to the handouts worth ¥100,000, an additional ¥100,000 handout would be given to low-income households that are exempt from paying residential tax — a step advocated by the LDP.
“Both parties simply combined the pledges they made for the lower house election. The agreement was just a product of compromise,” a senior Finance Ministry official told The Yomiuri Shimbun.
Question marks over impact
Distributing cash and vouchers to large chunks of the population in a bid to jump-start the economy has been done before. Komeito, which positions itself as a party on the side of ordinary citizens, has often been at the forefront of such policies.
The cash handouts have been touted as a way to boost consumption and buoy the economy. However, skeptics doubt whether the policy will have a tangible impact as the handouts might end up in saving accounts due to uncertainty about the future, among other reasons.
It has been said that a significant portion of the ¥100,000 received by residents across Japan last year ended up in savings accounts. According to Bank of Japan statistics, the amount of cash and deposits held by the nation’s households at the end of fiscal 2020 was about 5% higher than the previous year, hitting a record high.
“An income cap has been put in place, but because the benefits will also be paid to some households with high-income earners, I think a considerable amount will end up sitting in personal savings,” said Ryutaro Kono, chief economist at BNP Paribas.
About ¥50,000 of the ¥100,000 benefits will be distributed in the form of vouchers. “It’s anticipated that the vouchers will be used for shopping and the cash will be diverted into bank accounts,” Kono said. “I don’t think the voucher system will be very effective in preventing people from using the money to pad their savings.”
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