The Japanese government has decided to give 30,000 yen in cash handouts each to some 12.5 million people, who receive lower pension benefits and is set to incorporate the funds in the fiscal 2015 supplementary budget and the fiscal 2016 budget.
Despite a severe fiscal squeeze, the government will spend approximately 390 billion yen in taxpayers' money for the measure starting in fiscal 2016. However, serious questions remain as to whether the move will help prop up the economy equal to the amount spent.
The government has declared that it will proactively support those who are rearing children. As such, the reason why the new financial support is limited to pensioners is beyond rational explanation.
Moreover, the government has intended to begin providing financial support to low-income pensioners when the consumption tax rate is raised from the current 8 percent to 10 percent in April 2017 to lessen the tax burden on them. Officials explain that the handouts are extraordinary financial assistance in advance of the planned payments after the tax hike. However, the purposes of these two measures are quite different, and the policy is full of contradictions.
Consumer spending has remained sluggish since the consumption tax increase from 5 percent to the current 8 percent in April 2014. Rises in the prices of foodstuffs resulting from the devaluation of the yen have been weighing heavily on household budgets.
The Diet approved the fiscal 2014 supplementary budget in February this year that secured financial resources for 250 billion yen in grants to local governments, which can use the money to issue shopping coupons for local residents, among other measures.
But consumer spending in the July-September period was revised downward. Observations are prevalent among economists that the effects of cash handouts would have only limited effects on boosting the economy, just like shopping coupons.
The government should improve countermeasures against the population decline and other policy measures in an attempt to achieve long-term economic growth rather than short-term measures whose effects are uncertain. Prime Minister Shinzo Abe is pursuing the "dynamic engagement of all citizens," and has set a goal of maintaining Japan's population at a minimum of 100 million.
The government also explains that it is necessary to implement the latest measure to support senior citizens with lower pension benefits who have hardly benefited from wage hikes as a result of the "Abenomics" economic policy mix promoted by the Abe government. However, it is not only pensioners that are struggling to make ends meet.
Salaries have been increased mainly at major companies, while non-regular workers have hardly won any wage hikes. Such non-permanent workers account for roughly 40 percent of Japan's total work force. Many of these non-regular workers are young people or those raising young children. As such, many of these non-permanent workers are living a hard life.
Prime Minister Shinzo Abe has emphasized that the government is promoting support for those rearing children as one of the new "three arrows" of Abenomics. The government is set to earmark some 50 billion yen in the fiscal 2015 supplementary budget draft to help create more nursery schools.
If the government is to use limited financial resources to support childrearing, it should broadly allocate funds to finance such measures and speed up its implementation of these measures. It is irrational for the government to provide cash handouts to only pensioners among all low-income earners.
Cash handouts will be provided to roughly 11 million people aged 65 or over, whose average annual income including pension benefits is up to about 1.55 million yen, as well as around 1.5 million people who receive benefits for basic pensions for disability and bereaved families.
In addition, the government has decided to begin providing 60,000 yen a year each to those with low pension benefits after the consumption tax raise in April 2017. However, there are only about 6 million eligible people whose annual incomes are up to around 870,000 yen or are receiving benefits of basic pensions for disability and bereaved families. This is because the program is aimed at helping ease the tax burden on those with lower pension benefits after the tax hike.
However, cash handouts to be implemented next fiscal year will cover a far broader range of people and the policy goal is completely different from that of the financial support to be extended to low-income earners after the consumption tax increase. As such, the latest measure deserves criticism that it is nothing but pork-barreling aimed at winning support for the ruling coalition in the next House of Councillors election in the summer of 2016.