With fuel prices continuing to soar, it will be problematic if the government relies on makeshift measures. In addition to actively supporting companies and households that are being hit hard, the government also needs to make every possible effort to secure resources in a stable manner.
The government has decided on an emergency economic package totaling ¥13.2 trillion, including contributions mainly from the private sector, in response to rising prices. Of the total, ¥6.2 trillion will be paid from state coffers.
The main pillar of the emergency measures is the expansion of steps to curb gasoline prices.
The government said it will aim to raise the maximum subsidy to oil wholesale companies from the current ¥25 per liter to ¥35 and lower the national average price from ¥172 to ¥168. A total of ¥1.5 trillion will be invested by September for that purpose.
The burden of rising fuel prices tends to be concentrated on small and midsize companies and low-income earners. It is understandable to implement support measures.
However, soaring crude oil prices are highly likely to be prolonged, due to the impact of the Ukraine crisis as well as the economic recovery from the COVID-19 pandemic and progress in decarbonization. Price controls stemming from the government subsidy cannot be deemed sustainable.
There is criticism that using subsidies to curb prices, which are fundamentally determined by supply and demand, could distort the market. With electricity and gas charges rising as well, some people are skeptical about just lowering the prices of gasoline, which is also used for leisure activities.
If price increases continue for a prolonged period, it will likely be necessary to shift the focus of assistance to such recipients as farmers with greenhouses who use a lot of fuel, the transportation industry, and households for which gasoline is essential to their daily lives.
Given that, it is essential to strengthen measures to secure energy. In cooperation with other oil-consuming nations, Japan should continue to urge oil-producing countries to increase their production. It is hoped that Japan will encourage the private sector to invest in cooperation with other countries toward the expansion of crude oil and gas production in various parts of the world, which has been stagnant due to the impact of decarbonization.
In addition to expanding the use of renewable energy, it is also urgent to use nuclear power plants whose safety has been confirmed.
The key features of the emergency economic package include payments of ¥50,000 per child for low-income households, and ¥100,000 for households that are exempt from residential tax from this fiscal year due to a decrease in income.
The government plans to finance such measures by using part of reserve funds for coronavirus control measures that were allocated in the budget for this fiscal year, and with ¥2.7 trillion from a supplementary budget to be compiled later.
Negotiations between the ruling Liberal Democratic Party and its coalition partner Komeito have had rough going, as the LDP initially tried to use only reserve funds for the emergency measures, while Komeito sought the compilation of a supplementary budget. It is inevitable that the scale of the project has ballooned as a result of their maneuvering ahead of the House of Councillors election slated for this summer.
The ruling parties should focus on structural reforms to strengthen the Japanese economy, rather than taking temporary measures aimed at a national election.