TOKYO (Reuters) – Japan on Tuesday announced a new $ 708 billion economic stimulus package to accelerate the recovery from the country’s deep recession due to coronaviruses, while targeting investments in new growth areas such as green and digital innovation.
The new package will include around 40 trillion yen ($ 384.54 billion) in direct tax spending and initiatives to reduce carbon emissions and boost the adoption of digital technology.
Policymakers around the world have triggered a wall of monetary and fiscal stimulus to prevent a deep and prolonged recession as the coronavirus closed international borders and sent millions of people out of work. In the United States, a $ 908 billion coronavirus aid plan is currently being debated in Congress.
In Japan, the pandemic has forced the government to put its tax reform program on hold, despite the weight of the heaviest public debt in the industrial world, twice the size of its economy.
“We have compiled the new measures to maintain jobs, support businesses and restore the economy and pave the way for new growth in green and digital areas, to protect people’s lives and livelihoods”, Prime Minister Yoshihide Suga said in a decision meeting. party leaders.
The package, approved by the cabinet on Tuesday, would bring the combined value of the coronavirus-related stimulus to about $ 3 trillion, or about two-thirds the size of the Japanese economy.
Suga said the new stimulus will increase Japan’s gross domestic product (GDP) by about 3.6%.
Japan’s economy, the third largest in the world, rebounded in July-September after its worst post-war contraction in the second quarter, although many analysts expect a third wave of infections in the COVID-19 maintains a modest recovery.
In addition to direct tax expenditures, the package included credit guarantees and loan facilities for small businesses facing financing strains caused by the pandemic.
The new stimulus also included steps outlining Suga’s political priorities for a post-pandemic world, unlike two previous packages which focused on immediate pressure on households and businesses from the pandemic.
Examples include a 2 trillion yen fund to promote investments that help achieve carbon neutrality by 2050, and 1 trillion yen to accelerate digital transformation.
However, details were missing on how to fund the package.
The government will compile a third additional budget of 20 trillion yen for the current fiscal year, a source told Reuters. We also see money being set aside for the package in next year’s budget.
With tax revenues affected by falling corporate profits blamed on COVID-19, some investors say the government may have to issue 15 trillion yen in new bonds to fund the Third Supplementary Budget alone.
“Japan needs to come up with a tax reform plan and move on to rebuilding public finances at some point. But now is the time to help businesses and households affected by the pandemic, ”said Yuichi Kodama, chief economist at the Meiji Yasuda Research Institute.
(1 USD = 104,0200 yens)