Aso unveils 26.9 tril. yen new stimulus package to tackle crisis

TOKYO, Oct. 30 Kyodo - Prime Minister Taro Aso on Thursday unveiled a new economic stimulus package
worth 26.9 trillion yen to cushion the negative impact of the global financial
crisis on people's livelihoods, featuring an average 60,000 yen in cash
benefits for a family of four.
The package involves 5 trillion yen in fresh state fiscal spending. In addition
to the cash benefits program totaling 2 trillion yen, its key elements include
boosting the scale of tax breaks for those paying housing loans, extending the
preferential treatment for tax levies on capital gains and cutting regional
expressway tolls.
Aso told a press conference that the world has been going through ''a financial
rainstorm which could happen once in a 100 years'' and the Japanese economy
will ''certainly be hit'' by the current credit turmoil.
''The most important thing is to allay concerns about people's livelihoods,''
he said.
To finance the stimulus steps, the premier said the government will avoid
issuing deficit-covering bonds so as not to further worsen the nation's already
tight fiscal position.
Economic and Fiscal Policy Minister Kaoru Yosano later told a press conference
that the government will rely on reserves in the nation's special account
budgets to finance the latest package.
The premier said the government will provide all households with cash benefits
by the end of March. While the government has yet to decide on how to provide
the money, ideas being studied include payment at local government counters and
bank transfers.
Aso also said he wants to raise the consumption tax in three years' time after
the economy recovers, in a bid to cover snowballing social security costs in
rapidly aging Japan.
The second economic package comes after earlier stimulus measures worth about
11.7 trillion yen, which were compiled in late August to tackle surges in
energy and raw materials prices.
As part of the first economic package, a 1.81 trillion yen extra budget for the
current fiscal year through next March was enacted earlier this month. The
government is expected to submit to the Diet a second supplementary budget for
fiscal 2008 later this year.
Private-sector economists said the latest package will be effective in
mitigating the expected immediate damage to the Japanese economy inflicted by
the global crisis, but will not likely spur growth over the long term.
Takahide Kiuchi, chief economist at Nomura Securities Co., said he estimates
that the new package will push up the nation's gross domestic product by 0.4 to
0.5 percentage point, with the cash payments and tax cuts for homeowners on
housing loans buttressing the economy.
But to achieve long-term growth, the package should have included ways to boost
the supply side such as preferential tax treatment for companies to promote
their research and development, and incentives for corporate capital investment
to strengthen their competitiveness, Kiuchi said.
''After all, this crisis originated abroad and it will be impossible for Japan
to fight against it only with domestic fiscal measures,'' he said.
Under the new package, the government plans to expand the scale of tax breaks
for those paying housing loans to up to 6 million yen over a 10-year period --
the largest on record. The program was originally scheduled to expire at the
end of December.
In the current system, those who start living in their new home in 2008 can
receive a maximum 1.6 million yen in income tax deductions over 10 or 15 years.
Tax breaks amounted to a maximum 5.88 million yen for homeowners paying housing
loans over 15 years starting from 1999-2001.
The additional program also features extending the current preferential
treatment for tax levies on capital gains for three more years as well as
adding 21.8 trillion yen for a credit guarantee and lending scheme for small
businesses to bring its size to 30.8 trillion yen.
The scheme is intended to facilitate fundraising activities of cash-strapped
small businesses. The government had allocated 9 trillion yen for the scheme in
the first economic package.
As for the cuts in regional expressway tolls, the government plans to reduce
the charges to a maximum of 1,000 yen on holidays.
A cut in premiums for the national unemployment insurance program and
incentives for companies to hire non-regular, part-time workers as full-time
employees are also included.
The government intends to help secure employment for small businesses and in
rural areas.
To revitalize regional economies, the central government will also divert 600
billion yen to municipalities.
As Aso's remarks on the sales tax hike indicated, the latest economic package
touches on a midterm tax reform program to cover ballooning social security
costs. Details of the program will be decided by the end of this year.
The government said it will implement tax cuts and other economy-boosting
measures over the next three years to achieve a recovery, and then reform the
tax system to secure necessary revenue.
Critics say the new package will require pork-barrel spending and that the
ruling Liberal Democratic Party and its coalition partner, the New Komeito
party, are trying to woo voters with cash benefits in the run-up to a general
election.
In 1999, the government issued gift vouchers worth 700 billion yen in total to
stimulate regional economic activity at the request of New Komeito's
predecessor.
Contrary to expectations, a government survey conducted later found that, of
the shopping coupons that were actually used, only 32 percent contributed to
spurring consumption.
The vouchers were distributed only to households with children aged 15 or
younger and bedridden or low-income people aged 65 or older. They were only
valid for six months in the city or town where the recipient lived and were not
exchangeable for money.
==Kyodo