Economic repercussions from the war in Ukraine should not be used as an excuse to justify expenditures aimed at helping the ruling coalition win the Upper House election to be held this summer.
A package of emergency steps to cushion the impact of higher prices of crude oil and other goods that Prime Minister Fumio Kishida ordered to cobble together by the end of April should be clearly focused on those who really need support, so as to maximize cost effectiveness.
In a policy response to soaring gasoline prices, the government in December introduced a program to provide state subsidies to oil wholesalers. The subsidies have gradually increased to keep gas retail prices from rising above the level of around 172 yen ($1.42) per liter.
The focus of debate on the package is whether to invoke a “trigger clause” to temporarily lower the gasoline tax by 25.1 yen per liter from the current 53.8 yen. But this measure is unsuited to a flexible policy response because it requires a revision to the law.
It could also create confusion at gas stations if consumers avoid filling their cars up before the tax cut and rush to the pumps once it is in place. This measure, like the subsidies, would pose other challenges, such as how to secure financing and ensure consistency with policy efforts to reduce the nation’s carbon footprint.
The opposition Democratic Party for the People (DPP), which voted for the government’s draft budget for the new fiscal year starting April 1, is demanding that the trigger clause be activated. The government needs to assess the pros and cons of the proposal and not give priority to widening the rift within the opposition camp.
Surging energy prices are bound to have far-reaching effects on the lives of people. There is no quick fix to the problem as it is difficult for any oil-producing country to fill the gap created by economic sanctions against Russia, a major oil producer. It is vital to take steps to curb demand for oil in response to the fall in supply of fossil fuels.
Price rises are the way the market tries to achieve a balance between demand and supply. Still, this does allow for reasonable policy attempts to stop a temporary and drastic fluctuation in prices. But any effort to keep prices from rising by fighting market forces will inevitably lead to distortions.
The government should design the planned package to focus on supporting low-income earners under the assumption that certain price increases are inevitable.
Costlier oil will push up electricity and gas bills. Many food products will also become more expensive. The Kishida administration needs to hammer out a plan to support consumers hard hit by higher prices of a wide range of daily necessities. The Bank of Japan, for its part, should consider flexible monetary policy responses to any excessive weakening of the yen.
Sanae Takaichi, the policy chief of the ruling Liberal Democratic Party, has said the government and the ruling coalition have decided to drop the idea of doling out a lump sum payment of 5,000 yen to elderly people. The decision is hardly surprising given that the proposal was criticized as a politically motivated giveaway to elderly voters prior to the Upper House election.
What is baffling is Kishida’s order that the execution of public works spending plans be moved forward. The move does not seem to have anything to do with policy efforts to tackle inflation. If the government includes familiar fiscal stimulus measures in the planned package, it would give the ruling bloc and related industries a good excuse to demand additional spending in the second half of the fiscal year.
The Kishida administration plans to finance the package by tapping the 5-trillion-yen reserve fund for dealing with the damage stemming from the COVID-19 pandemic, a pool of money it can use without seeking Diet approval.
But the government should not be allowed to dip into the fund, which was set up to finance measures related to the pandemic, to pay for steps to dull the impact of higher prices.
The government should ensure policy integrity in financing the package by formulating a supplementary budget for the purpose and submitting it to the Diet. It should take no action that would undermine the fiscal democracy required by the Constitution.
–The Asahi Shimbun, March 31