World Economy

Japan Weighs Up $25b Extra Budget

Japan Weighs Up $25b Extra BudgetJapan Weighs Up $25b Extra Budget

Japan’s government is considering an extra budget worth as much as $25 billion (3 trillion yen) to help the economy recover from recession, according to people involved in the discussions.

The package would pay for shopping vouchers for consumers hurt by a sales-tax increase and relief for businesses squeezed by the weaker yen, and would also fund reconstruction work in the earthquake-hit north, said one of the people, who asked not to be named because the talks were private, Bloomberg reported.

Burdened by the world’s heaviest debt load, Prime Minister Shinzo Abe has little room to borrow and spend to jump start an economy that suffered its fourth recession since 2008 following April’s sales-tax hike. The government is crafting the stimulus with the aim of staying on track to reach a key budget-deficit reduction goal next fiscal year, according to another unnamed source.

A 3 trillion yen extra budget for the current fiscal year through March would not prevent the government from reducing its primary balance deficit as a proportion of economic output to half the level of fiscal 2010 in the year starting in April, a gauge of progress in improving its finances, one of the people said.

Abe last month postponed another increase in the levy by 18 months to April 2017 and called an election to seek a new mandate to cure the country’s economic ills.

The economy shrank an annualized 1.9 percent last quarter, more than initially estimated, after a 6.7 percent contraction in the three months from April, when the sales levy was raised for the first time since 1997.

  Election Looms

Japanese companies want Prime Minister Shinzo Abe to do more to boost growth, including steps like income tax cuts, as most think the economy is stalled or in recession after an April sales tax hike, a Reuters poll showed.

Coming ahead of a general election next Sunday in which Abe is seeking a fresh mandate for his reflationary policies, the survey results show strong support for his recent decision to put off a further planned increase to the sales tax by 18 months.

If he is re-elected - and polls have predicted a landslide victory - around half of firms want Abe to prioritize cuts to the corporate tax rate - which at around 35 percent is one of the world’s highest - as well as other growth strategies such as structural reform.

Another 23 percent said they were keen to see measures to boost consumer spending such as income tax cuts, while only 19 percent said the government should prioritize fiscal reform that would tackle the country’s ballooning debt.

“The government must put the economy back on track for growth, otherwise the decision to delay the tax hike will become meaningless,” wrote an executive from a transportation firm.