Japan Scrambles to Get $930 to All Who Apply as Virus Spreads
Japan Scrambles to Give $926 to Everyone in Nationwide Emergency
(Bloomberg) -- Japanese Prime Minister Shinzo Abe’s sudden about-face on a cash handouts initiative indicates the government was no longer convinced the original plan was quick enough or big enough to support households as the country ramps up its state of emergency.
Abe apologized Friday for the confusion caused by his decision to switch to 100,000 yen ($930) handouts for all who seek them, from an earlier plan to target larger sums at households in need. He said the change was made based on the views of the public and ruling and opposition parties.
The new policy, which came hand-in-hand with a decision to widen an emergency declaration to cover the whole country, will cost more than 14 trillion yen ($130 billion), he told reporters at his official residence.
Japan’s switch to a more expensive handout program despite its mountain of public debt is the latest sign that showing a whatever-it-takes response to the virus is sweeping aside concerns over controlling budgets around the world.
While some economists said the larger overall size of the package would give Japan’s economy more support and would initially deliver a stronger message of government action, others pointed out the lower yen-for-yen effectiveness of a blanket measure.
“The government should consider safety nets first, and originally they were planning to give bigger support to those who need help,” Keiji Kanda, senior economist at the Daiwa Institute of Research. “But it doesn’t matter any longer. It’s just giving away money.”
The original plan was to give 300,000 yen handouts to households that could prove a loss of income, a condition that could have slowed down distribution of cash and increased the risk of infection at administrative offices handling requests.
Abe said Friday the application processes will be simplified and available online as well as by mail to try to get funds to people as soon as possible.
The shift in policy will likely require an extremely rare last-minute change to an extra budget. The government has already set out its extra funding plans for the current fiscal year to pay for the record 108.2 trillion yen economic stimulus package.
Spend, Spend, Spend
Under the current 17 trillion yen extra budget proposal, roughly 4 trillion yen was set aside to give cash to struggling households, according to the finance ministry.
Chotaro Morita, chief rates strategist at SMBC Nikko Securities Inc., wrote in a note Friday that the ongoing crisis could require a second extra budget and a further adjustment of its debt issuance plans.
Abe’s public support has dropped, with recent polls showing voters think his initial emergency declaration should have been made earlier and wider. A poll published by the Yomiuri newspaper on April 14 showed support for his cabinet fell 6 percentage points to 42%, in one of a series of surveys that show more people disapprove of his government than approve.
“They had no choice but to stage a major change with support falling,” Nihon University professor Tomoaki Iwai said. “There’s no question the administration went astray, and as a result things are getting delayed. It’s certainly a setback for Abe.”
Japan’s antiquated approach to keeping government records is already hindering some of the other subsidies aimed at businesses hit by the virus. Efforts to streamline Japan’s system for taxation, social programs and other services with an individual identification number have had only a limited impact.
Abe, the nation’s longest-serving premier, has called the current crisis the biggest economic challenge since the end of the World War Two. Some analysts see the economy shrinking at an annualized pace of more than 20% this quarter under the weight of the virus.
What Bloomberg’s Economist Says
“If speed was of the essence, this plan should have been rolled out from the beginning. In terms of effective use of money spent, 300,000 yen for the needy is clearly better since those people will spend around 70% of the handout. Only about 20% of the money will get spent if everyone gets it. So Abe appears to lose both speed and effectiveness with this move.”
--Yuki Masujima, economist
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