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The government will provide an additional budget of 13. 1 trillion yen
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Package of Tax Breaks, Subsidies and Payments
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Analysts expect the plan to do little to stimulate consumption.
(Adds an estimate of the government’s effect in paragraphs 6-8, the debt context, and Japan’s expansion in paragraphs 15 and 16)
By Leika Kihara and Yoshifumi Takemoto
TOKYO, Nov 2 (Reuters) – Japan’s government on Thursday drew up a package of measures to cushion the economic blow caused by inflation, which will require spending of more than 17 trillion yen ($113 billion), a move that could worsen the situation. the country’s already crumbling finances.
To finance the spending, the government will draw up a supplementary budget for the current fiscal year of 13. 1 trillion yen, according to the plan approved by the cabinet.
Including local government spending and state-guaranteed loans, the amount of the program will amount to 21. 8 trillion yen.
“Japan’s economy sees a wonderful opportunity to move to a new level for the first time in three decades” as it emerges from a deflationary spiral, Kishida told an assembly of government leaders and rulers on Thursday.
“That’s why we want companies to increase their profitability and generate profits to increase wages,” he said.
The program includes transitory rebates on income source and residential taxes, bills for households with low income sources, and subsidies to reduce fuel and application bills.
Taken together, the spending plan will increase Japan’s gross domestic product (GDP) by about 1. 2% on average over the next three years, according to a government estimate.
The effect of gas and app subsidies will reduce overall customer inflation by about 1. 0 percent between January and April next year, he said.
Inflation, driven by emerging commodity costs, remains above the central bank’s 2% target for more than a year, weighing on income and clouding the outlook for an economy slow to recover from the shocks. scars left by COVID-19.
The mounting burden of life is attributed in part to Kishida’s declining approval ratings, increasing pressure on the prime minister to take steps to ease family suffering.
Analysts doubt that the estimated five trillion yen that will be spent on tax cuts and bills will go largely toward boosting Japan’s income and economic growth.
Takahide Kiuchi, a former member of the Bank of Japan’s board of trustees and recently an economist at the Nomura Research Institute, expects the measures to boost GDP by just 0. 19% for the year.
“It’s a policy that’s very profitable,” he said. With Japan’s production hole turning positive in April-June, the economy doesn’t want a stimulus package in the first place. “
The package also includes measures to supply key chains and technologies, such as tax breaks for corporations that invest in spaces considered strategically important.
The spending could simply force the government to factor in more bonds and increase Japan’s developing public debt, which, at twice the length of its economy, is the largest among primary economies.
Japan’s economy is most likely in the third quarter after a bumper expansion in April-June, according to a Reuters poll, as emerging inflation and a slowdown in China weigh heavily on income and exports. The fall in real wages in July adds to doubts about the core economy. The bank projects that domestic demand can keep the country on the path to a stable recovery.
($1 = 150,5100 yen) (Reporting via Reporting by Leika Kihara and Yoshifumi Takemoto; Additional reporting via Takaya Yamaguchi; Editing via Kim Coghill and Jacqueline Wong)