Japan’s Cabinet yesterday approved billions of dollars of stimulus spending in a supplementary budget meant to perk up a faltering economic recovery and cushion the impact of a sales tax hike in April next year.
The ￥5.5 trillion (US$53 billion) in fresh stimulus approved by the Cabinet is aimed at creating at least 250,000 jobs and is heavily weighted toward construction projects.
The package also includes ￥600 billion in payments to home buyers and one-time payments of ￥10,000 per child to low and middle-income families.
Japanese Prime Minister Shinzo Abe promised the extra stimulus to counter a 3 percentage point increase in the sales tax to 8 percent in April.
Parliamentary approval of the stimulus in early next year is expected since Abe’s Liberal Democratic Party of Japan and its coalition partners hold majorities in both houses.
Japan’s economy — the world’s third-largest — emerged from recession late last year, growing at a brisk 4.3 percent pace in the first quarter of this year.
However, its pace of expansion slowed to 1.1 percent in the third quarter, as corporate investment remained sluggish and exports were sapped by lackluster growth in emerging economies.
So far, the biggest driver for the recovery has been hefty government spending, which is also the type of spending the tax hike is aimed at making up for.
The economy may get a boost in the coming months as consumers speed up major purchases to beat the sales tax hike, but the government has forecast a short-term contraction in the economy after the higher tax takes effect.
Another increase in the sales tax — by 2 points — is expected in 2015.
The supplementary budget approved yesterday, along with local government spending on public works and grants for lending to small enterprises, is meant to put another ￥18.6 trillion into the economy.
Abe has said that this will add a full percentage point to Japan’s GDP.
The spending does not involve any new public debt since much of the money to be used was left over from previous, unspent budgetary allocations. The rest comes from taxes and other forms of government revenue.