Japan OKs $87 billion extra budget for FY 2023 to fight inflation
TOKYO (Kyodo) -- The Cabinet approved Friday an extra budget plan of 13.20 trillion yen ($87 billion) for fiscal 2023 ending March to fund a new economic package designed to mitigate the burden of rising prices on households and navigate the economy through the cost-of-living crisis.
Of the total, 8.88 trillion yen will be secured by issuing new government bonds, adding to a pile of state debt already amounting to more than twice the size of the economy. The government aims to have the budget plan approved by parliament before the end of November.
Ideas:
Once a government begins to spend it seems there is no off-ramp as spending just continues. In this case, maybe the extra budget is needed, but will it really help the average Japanese household through the inflation situation.
Nothing needs to be said about the Japanese government is going to pay for the extra budget, as it just keeps buying bonds, as it debt to GDP ratio is the highest among advanced economies.
Since the 1990's, I've often wondered just how the Japanese economy can keep going with so much debt or so much government spending. But it might be a situation that the Japanese government knows hows how to move the pieces around to keep everything going.
Article:
The supplementary budget brings total spending for fiscal 2023 to a massive 127.58 trillion yen. Roughly a third, or 44.5 trillion yen, will be funded by government bonds, with the restoration of fiscal health taking on greater urgency amid prospects that rising bond yields will increase debt-servicing costs.
Prime Minister Fumio Kishida is prioritizing tackling the recent bout of inflation, largely caused by the higher costs of importing energy and raw materials, as rising prices of everyday goods have sent his approval ratings to fresh lows at a time when real wages are falling.
Ideas:
Its unfair to blame any government leader for what is happening in an economy, as he/she doesn't control everything.
Japan is a resource-poor country and has to import much of what it needs. At the same time, the key rate in the US and the key rate in Japan are far apart, which is causes import prices t be higher than usual.
If you want to place blame, then the Bank of Japan might be the reason with its ultralow policy of near zero rates.
However, the Bank of Japan has to look at all factors and maybe they feel the zero rate policy is best for the Japanese economy at this time, despite it maybe causing higher than normal inflation in the Japanese economy.
Article:
The government will give low-income households who are exempt from paying tax 70,000 yen by the end of the year, which will cost around 1.06 trillion yen.
Another key feature of the package, an income and resident tax cut of 40,000 yen per person, will require around 3.5 trillion yen but will be implemented in June, meaning that it will affect the next fiscal year's budget.
Ideas:
Giving low-income households 70,000 yen is a good idea, but is it enough as maybe after a few months its used up because of inflation. No government can just give large amounts of money away, to help households, but something is better than nothing.
And the tax cut of 40,000 yen is also a good ideas, but again is it enough, but again, a government can't do everything for those in a society but its better than nothing.
Another issue is how to get to the households how need it or deserve it, as sometimes paperwork can be too much and some give up trying.
If the Japanese government makes the process stress free, meaning not a lot of paperwork then, it has served its purpose.
At the same time, as with any government program, there have to be safeguards to prevent those from taking advantage of the situation.
Article:
"We have compiled measures that are truly necessary to protect people's livelihoods from surging inflation, and strengthen the momentum for structural wage hikes and more investment," Finance Minister Shunichi Suzuki said at a press conference.
Suzuki acknowledged that Japan's fiscal health is at its worst level but a strong economy is the prerequisite for fiscal restoration. The government will aim to reduce fiscal spending to levels of "normal times," as it crafts by the end of the year a different budget for fiscal 2024, the finance chief added.
Ideas:
Wage hikes might be the most important factor to get the Japanese economy back on the right track again, including reducing inflation's affect on Japanese households.
But it all depends on the wage negotiations and how much companies are wiling to offer in April 2024. It April of 2023 the average was about 3.5% for the wage increases.
A strong economy is a good idea and might actually improve Japan's fiscal health, but Japan hasn't had a strong economy in a very long time, maybe even decades.
Reducing fiscal spending to "normal times" sounds good but most government don't do it or can't do it as they just keep spending, as Japan is always spending a lot.
Article:
The economic package approved in early November by the Cabinet has five pillars. Some 2.74 trillion yen will be spent on inflation relief steps, such as an extension until next spring of existing subsidies to lower gasoline and other fuel costs.
The government will spend 1.33 trillion yen to support small and midsize companies implementing pay hikes, and 3.44 trillion yen to foster growth in strategic sectors through investments, such as in artificial intelligence and semiconductors.
Ideas:
Inflation relief steps are good as maybe it can help households reduce their household energy costs.
The next step is the most important, as last spring, in 2023, most small and midsize companies were unable to give wage increases. But the government needs to make sure whatever they do to help small and midsize companies is enough of an incentive for small companies to actually do it.
The last pillar, while important, is not as important as subsidies to reduce inflation and help small businesses with wage increases.
Improving the semiconductor sector is a good idea, but maybe its little late as Taiwan and South Korea seem to have of the market share related to semiconductors.
Recent articles suggest that Taiwan and Japan have formed an alliance to build semiconductor plants in Japan.
Article:
Japan is seeking to build robust supply chains since COVID-induced parts shortages impacted automakers and other manufacturers and raised the alarm about national security risks.
The government is supporting Taiwan Semiconductor Manufacturing Co. and Rapidus Corp. of Japan, with 1.85 trillion yen earmarked in the budget for chip-related assistance.
Funds will be also allocated for the other two pillars of tackling the challenges posed by the nation's declining birth rate and taking steps to ensure the safety and security of the Japanese people.
Ideas:
If anything, building semiconductor plants in Japan might be a way for Japan's supply chains to not go though what happened during the pandemic. Again, it might not increase market share and have any kind of dent in the global market place, but it might help Japan and its supply chain challenges.
Solving the declining birth rate is a very complex challenge as it might take, not only government policies, but also a change in the mindset of society.
Working women in Japan seem to be at a disadvantage with lower wages and long work hours compared to other advanced nations.
Perhaps Japan could look at how the countries in the EU handle the working women and low birth rate situation.
Article:
The tax cut plan has met criticism from opposition lawmakers who say the government is doing too little too late and are calling for a reduction in the consumption tax instead, as the country's inflation rate has been above 2 percent for more than a year.
Some opposition lawmakers have also taken issue with what they see as the government's "illogical" explanation.
Kishida has said the tax cut is part of efforts to "return" some of the increased government revenue in recent years to the public, though finance chief Suzuki told parliament this week that the government had already used the increased revenue to finance other policies and redeem debt.
Ideas:
Any plan by the ruling party that is in control always meets opposition from other government parties.
No government plan is ever perfect and this one is not perfect too, but they are put together by politicians and they all have competing interests related to what they think is important.
A reduction of the consumption tax, or sales tax is a good idea, as in 2014 and 2019 both sales tax increases were very unpopular with Japanese society.
The Japanese economy has a long way to go to solve its inflation challenges and its deflation too. There are no easy answers for the Japanese government or even the Bank of Japan.
Have a nice day and be safe
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