JAPAN: Suga puts his stamp on economic policy in new stimulus package

The Suga administration has unveiled a new stimulus package, the third stimulus package to counter the impact of Covid-19. While the new stimulus package is smaller than the first two, it includes a significant sum of money aimed at post-pandemic structural transformation. The new stimulus package reflects Prime Minister Yoshihide Suga’s priorities, with spending on digital transformation, the transition to a carbon-neutral society, and revitalization of stagnant regions. At a special meeting on Tuesday, 8 December, the Suga cabinet approved a new stimulus package, the third of FY2020 and the first since Prime Minister Yoshihide Suga took office in September. The new stimulus package is smaller than the first two, totaling roughly JPY 73tn (USD 700.8bn) compared with the roughly JPY 117tn (USD 1.1tn) provided in each of the first two when credit guarantees and other measures are included. The new stimulus package extends critical subsidy programs introduced in the first two packages – including income and employment subsidies and supply chain resilience incentives – and provides new relief for prefectures and localities to shore up their medical systems and provide relief to businesses affected by orders to shorten hours. However, the stimulus package is also notable for what it reveals about Suga’s post-Covid-19 economic agenda. In fact, the largest share of the stimulus package is focused on “economic transformation towards post-Corona and the realization of a virtuous cycle.” This includes funding for Suga’s digital transformation agenda and the realization of a “green society” following Suga’s pledge to achieve net-zero carbon emissions by 2050. Spending for the latter includes the creation of a JPY 2tn (USD 19.2bn) green technology fund. The new stimulus also includes programs to promote innovation and productivity improvements, particularly among small- and medium-sized enterprises; extends the supply chain resilience initiative created this year and includes incentives to attract more investment to Japan; and a raft of new programs to promote growth and employment in stagnant regions. Of the roughly JPY 40tn (USD 384bn) in government spending in the stimulus package, which will be split between ordinary government spending and Fiscal Investment and Loan Program (FILP) projects, the government will spend JPY 18.4tn (USD 176.6bn) on these “post-Corona” programs. This figure dwarfs the roughly JPY 12tn (USD 115.2bn) it will spend on Covid-19 prevention and mitigation measures and disaster prevention and mitigation infrastructure, the other two major pillars of the stimulus package – and in practice, even these pillars also include programs to advance digitalization, enhance productivity, or achieve other goals included in Suga’s transformation agenda. This package, effectively a Suga “growth strategy” program, demonstrates the points of departure that separate “Suganomics” from Abenomics. The means are the same: Suga, like former prime minister Shinzo Abe, is still following a state-led development model where the government identifies strategic priorities and uses all of its tools to shift economic activity towards more productive activities. The difference, however, is that Suga may be better able to prioritize and focus than Abe had been. The areas included in the stimulus package reflect both Suga’s long-standing interests (digitalization, regional revitalization) and an issue that he has identified as paramount (climate change). If Suga is able to remain in power, this could be the beginning of a more focused “post-Abe” growth strategy. Of course, in light of Suga’s challenges, the most politically salient measures are those that will boost economic activity in the immediate term. To this end, the stimulus package will extend the “Go To” campaigns through the end of June, which, depending on vaccine distribution, could subsidize a bonanza year for travel during the Golden Week holidays in late April and early May, but will also encourage more dining out and shopping through H1 2021. The stimulus package also extends special employment adjustment subsidies, which have helped businesses retain workers, through February, after which they could be gradually phased out. A new JPY 1.5tn (USD 14.4bn) grant will help localities reinforce their medical institutions and compensate businesses affected by reduced working hours during the third wave of Covid-19. A new subsidy program will offer SMEs up to JPY 100mn (USD 960,126) to reorganize their businesses, move into new industries, or otherwise take steps to boost their productivity. The nearly JPY 6tn (USD 57.6bn) of infrastructure investment will likely satisfy key Liberal Democratic Party (LDP) constituencies across the country. Finally, the stimulus package includes JPY 10tn (USD 96bn), divided between the FY2020 third supplemental budget and the FY2021 general budget, to replenish the government’s reserve funds, money that the Suga administration will be able to use at its discretion to support its initiatives. The size of the stimulus package swelled after Suga first indicated that he would push for a third relief package. This growth reflects concerns among the government and ruling coalition about a “GDP gap” estimated to be roughly JPY 34tn (USD 326.4bn), which helps explain why the “fresh water” spending – excluding FILP programs, credit guarantees, and other stimulus programs – totals JPY 32.3tn (USD 310.1bn). The ruling parties were similarly pushing for roughly JPY 30tn (USD 288bn) in stimulus as negotiations with the government advanced. The upshot is that while the stimulus package will not necessarily help Suga in the immediate term as he grapples with the third wave and the political threat posed by Abe’s scandals, the stimulus package could help Suga in early 2021 as he looks to a possible snap election in the spring or summer. The first portion of the stimulus package, the third FY2020 supplemental budget, will be submitted to the Diet in its ordinary session next year, which will likely begin on 18 January. The reminder of the stimulus package will be included in the general budget that must be passed by the end of the fiscal year on 31 March.

December 8, 2020

Asia

JAPAN: Suga puts his stamp on economic policy in new stimulus package

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December 8, 2020

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