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Wednesday, Dec. 9, 2009

¥7.2 trillion stimulus plan is unveiled

Critics question impact of package

Staff writer

After haggling with a junior coalition partner over the size, the Cabinet of Prime Minister Yukio Hatoyama on Tuesday announced a ¥7.2 trillion economic stimulus package aimed at lifting the sagging economy and overcoming deflation.

Some economists, however, doubt the set of new measures will have a sufficient impact and worry that the administration may be deviating from its efforts to rebuild finances that are believed to be burdened with the world's largest public debt.

The stimulus package includes ¥3.5 trillion to help regional economies, ¥1.7 trillion to shore up the economy, ¥800 billion for taking environment-friendly steps and ¥600 billion to deal with rising unemployment.

The Cabinet failed last week to strike a deal on the size of the package as Kokumin Shinto (People's New Party), headed by financial services minister Shizuka Kamei, pushed for more spending than the government's initially proposed ¥7.1 trillion. Coalition members later agreed to add ¥100 billion to the package.

The government said some of the money will come from funds frozen in the previous administration's supplementary budget and that it will try as much as possible to avoid issuing new government bonds.

"We have selectively included measures with bigger economic impact," Deputy Prime Minister Naoto Kan said after the Cabinet's decision. With the package, the government said it will shore up the economy and employment.

As part of the package, the government will provide about ¥3 trillion in tax grants to local governments and ¥500 billion for public works projects for repairing bridges, laying utility lines underground and other infrastructure.

Main points

Kyodo News

The government plans to:

• Cover a ¥3 trillion decline in national tax revenue grants to local governments.

• Spend ¥1.2 trillion on financing measures, including support for small and midsize companies.

• Increase an interest rate cut from 0.3 percentage point to 1.0 point for loans from the Japan Housing Finance Agency for selected homes.

• Spend ¥800 billion on environmental measures, including forest road improvement and promotion of energy-saving home appliances.

• Implement measures to unify kindergartens and child care centers, and promote use of solar power at industrial plants.

It will also set aside ¥1.2 trillion in financial assistance for businesses.

In other areas, the stimulus plan includes steps to extend the government's Eco-point incentive program to increase purchases of energy-efficient appliances until the end of 2010 and subsidies for buying environment-friendly cars until September. It also includes a new measure to encourage people to build or renovate environment-friendly houses.

The government decided to ease requirements for companies to receive government subsidies to maintain employment.

Although praising the government's efforts to combat the sagging economy, some economists are skeptical the measures will be enough.

"As people's fears about the economy increase, we welcome that the countermeasures will be taken," said Keisuke Naito. But the senior economist at Mizuho Research Institute expressed concern about the expected massive fiscal spending when the economy is on a recovery path.

Hideki Matsumura, senior economist at the Japan Research Institute, expressed doubt the ¥7.2 trillion in stimulus will be enough to jolt the economy after such a prolonged slump.

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The Japan Times

Article 1 of 7 in Business news


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