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Saturday, Aug. 30, 2008

Stimulus package ready for Diet OK

Staff writers

Hammered out in lengthy negotiations among ministries and the ruling parties, the government put forward an ¥11.7 trillion economic stimulus package Friday financed by a ¥1.8 trillion supplementary budget to be submitted to next month's extraordinary Diet session.

News photo
Stimulated: Economy minister Kaoru Yosano faces reporters Friday in Tokyo to announce the government's economic package. KYODO PHOTO

The move by Prime Minister Yasuo Fukuda suggests a shift away from the fiscal belt-tightening of former Prime Minister Junichiro Koizumi, who aggressively slashed government costs to curb rising state debt.

Thanks to strong pressure from New Komeito, the Liberal Democratic Party's junior partner in the ruling bloc, the package also includes income tax cuts for low-income earners for the fiscal year ending in March. Details will be mapped out by year's end.

While no deficit-covering bonds are to be issued for the stimulus package, top government officials hinted it was a possibility if a large-scale income tax cut is agreed to.

Economic and fiscal policy minister Kaoru Yosano stressed that fiscal discipline was maintained in the new steps.

"Since we will not issue debt-serving bonds and are to compile a supplementary budget, fiscal discipline was maintained," he told reporters.

Yosano said the measures will be introduced progressively, with a further set of economy-boosting steps coming toward year's end.

In this package, "we set clear policy goals and important measures that should be prioritized," Yosano said.

The economic package involves moving up the implementation of this fiscal budget and drafting a supplementary budget to cover necessary funding for this fiscal year. Some of the projects in the package include those from the next fiscal year budget.

The ¥11.7 trillion represents the total value of programs to be implemented, including offering financial assistance to small firms and lowering expressway tolls.

The spending is expected to include ¥400 billion earmarked for enhancing the government-backed credit guarantee program designed to help fundraising by small and midsize companies.

With their balance sheets hurt by rising crude oil and materials costs, smaller companies are increasingly suffering a credit crunch as banks hesitate to lend to them for fear of default.

Highway tolls will be slashed by 50 percent on weekdays from midnight to 4 a.m. for electronic toll collection users. Already a 40 percent discount has been in place for such ETC users.

In compiling the package, New Komeito was adamant about including an income tax cut in the stimulus package. On the other hand, the government and LDP were reluctant to part with trillions of yen in needed financial resources.

As the LDP's advantage slips in the Diet, New Komeito's cooperation has become increasingly important in deliberations. The junior partner is also key to winning the next general election, which must be held by September 2009.

Negotiations ran up till the last minute before the two sides agreed to implement the income tax cut through the end of fiscal 2008.

Gist of economic stimulus package

Kyodo News

The government unveiled a stimulus package Friday worth about ¥11.7 trillion to ease the negative impact of rising energy and raw materials costs.

The government will:

Enhance state-backed credit guarantee programs to help small and midsize firms raise funds.

Boost financial support for sectors hit hard by high fuel costs such as operators of trucks, buses and taxis.

Implement cuts in income and residential taxes in fiscal 2008.

Help 1 million temporary workers find regular employment over three years.

Promote solar power in homes, firms and the public sector.

Curb the scale of the hike in wholesale prices of imported wheat.

Lower expressway tolls.

The focus now will be on the size of the cut and whether deficit-covering bonds will be issued — a scenario the government wants to avoid.

If the government is to rely on deficit-covering bonds, it will have to submit a second extra budget to the ordinary Diet session that convenes in January.

Drafting a second extra budget "is a possibility," Finance Minister Bunmei Ibuki told reporters. "If a large-scale income tax cut is agreed upon, it will be necessary."

Economists reacted coolly to the stimulus measures, viewing the package as "lacking surprises" and unable to help lift up the economy.

"Since this economic measure has long been reported, it will not incite any sense of disappointment, but it certainly lacks surprises and the needed economy-boosting effects," said Tetsufumi Yamakawa, Goldman Sachs Japan chief economist, noting a tax cut is unlikely to boost the current sluggish consumption.

Seiji Shiraishi, HSBC Securities Tokyo's chief economist, also said he did not feel that the stimulus package will have the intended effect.

"Originally, the factor behind the weakened Japanese economy was an external one, that is, reduced exports caused by the subprime (crisis in the U.S.) and high crude oil prices," he said.

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The Japan Times

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