The Japanese government has crafted a policy response to the soaring cost of living and added more than 6 trillion yen (about $46.9 billion) to the budget to cover it.
The Russian invasion of Ukraine has exacerbated rising prices for fuel, food and other items, so people need help covering their daily expenses. That being said, the new policy could not hide the political ulterior motives of the administration ahead of the House of Councilors election this summer.
The centerpiece of the government’s response is subsidies of more than 1 trillion yen (about $7.8 billion) to Japanese oil companies, intended to keep gasoline prices low.
Japan’s ruling parties and other figures have discussed implementing a legal “trigger provision” that would temporarily significantly reduce gasoline taxes, as proposed by the Democratic Party for the opposition people. The idea was eventually rejected due to resistance from the Liberal Democratic Party (LDP), the main partner in the ruling coalition. However, the price at the pump has come down more with the subsidies than it would have with the tax cut. The grant program has also been extended until the end of September and officials are considering extending it further. We can only conclude that this policy is designed to attract the public before the upper house elections.
The market will also be distorted by long-term government intervention. There will be no decline in fossil fuel consumption and government subsidies could very well slow down Japan’s decarbonization and energy conservation efforts.
Moreover, giving government relief for gasoline prices even as natural gas and electricity prices are skyrocketing seems unfair. Discussions on how to make Japan’s overall energy policy coherent have not been enough.
The policy of fighting price increases was also incompatible with support measures for people in financial difficulty. The government has decided to provide 50,000 yen (about $390) per child to help low-income households. However, he initially considered cash payouts of 5,000 yen ($40) to retirees. The sudden change of plan indicates that the proposal, which so blatantly lacks a clear guiding principle, has been put on the agenda simply because an election is looming.
An even bigger problem is that the government is preparing to build its reserve fund budget – funds that can be used at the discretion of the administration in power and without debate in the Diet. Some 5.5 trillion yen ($43 billion) has been set aside in the fiscal 2022 budget for this reserve pool, of which 1.5 trillion yen ($11.7 billion) is to be tapped to fund cost of living measures. A supplementary budget to add to the reserve is currently in preparation.
The move comes at the request of junior ruling coalition partner Komeito, which wants to increase government spending using the reserve fund ahead of the upper house poll. The LDP accepted the proposal because it wants to strengthen campaign cooperation with Komeito.
Until now, the reserve fund was in principle only to be used in emergencies such as natural disasters. However, it was significantly expanded to fund coronavirus pandemic response policies, including those that had nothing to do with preventing the spread of infection, such as the “Go To”.
The Diet’s consideration of the government’s budget proposal is an essential function of democratic politics. It is quite natural to regard these additional additions to the reserve fund as depreciating the Diet.
Prime Minister Fumio Kishida has made much of his desire for economic redistribution, but we see no evidence that he has the power to lead on this. So far, his metrics seem almost entirely dependent on Japan’s indebtedness. Policies designed solely to win the summer elections are irresponsible.