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Tokyo (Reuters): Japan’s ruling coalition has called for an extra budget including $92 billion in spending to revive slowing growth, party officials said on Thursday, raising concerns among analysts about the strain this would put on the already heavily indebted economy.
The agreement, made in a meeting between senior officials of Japan’s ruling coalition on Wednesday, highlights the concern among lawmakers about the economic outlook thanks to a sales tax hike in October and slowing global demand.
“Prime Minister (Shinzo) Abe told us to compile a sizable package to take all possible steps on the economy,” Economy Minister Yasutoshi Nishimura told a news conference on Wednesday.
“We want to craft a strong economic package, taking into account the economic situation, global economy and damage caused by typhoons, which were larger than last year, so as to get the economy on a solid growth path.”
But analysts expressed doubt about Abe’s ability to spend such a large amount given that Japan’s government debt is already twice the size of its $5 trillion economy, making it the industrial world’s heaviest public debt burden.
Major infrastructure spending programs could also face serious execution problems given that the country’s labour market is tighter than it has been in decades as the population ages rapidly.
“Even if the government secured a budget for big public works, it would be difficult to implement it smoothly,” said Kiichi Murashima, economist at Citigroup Global Markets Japan. “Chances are low for the government to compile a supplementary budget worth 10 trillion yen ($92 billion). We expect the size of this fiscal year’s extra budget to fall short of 5 trillion yen.” The government will compile a supplementary budget for the current fiscal year ending March 2020, as well as next fiscal year’s budget plan in December, allowing funds to be disbursed over a 15-month period, sources said. Both budget drafts need parliamentary approval to take effect.
Supplementary budgets of more than 10 trillion yen have only been compiled four times in the past, including after Japan’s devastating earthquake and tsunami in 2011.
The ruling bloc’s requests focus on spending for disaster relief from a string of typhoons that struck Japan earlier this year and funding to help farmers cope with the fallout from a US-Japan trade deal that opens the market to some US goods.
The government also aims to step up efforts to encourage corporate investment.
It plans to establish a 220 billion yen fund to help the private sector develop post-5G ultra-high-speed communications technology. It also aims to set up a framework to help small firms, which employ seven out of 10 workers in Japan, spur capital expenditure on condition that they increase pay, the Nikkei business daily reported.
Earlier this month, Abe ordered his cabinet to compile a package of stimulus measures to cope with external risks and large natural disasters, and support the economy after the 2020 Tokyo Olympics.
“We need a huge supplementary budget sized at least around 10 trillion yen,” Abe’s Liberal Democratic Party’s (LDP) heavyweight Toshihiro Nikai told reporters earlier this week.
