(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 Japan ramps up its state of emergency.
Abe said Thursday that the government was now looking to give 100,000 yen ($926) to everyone rather than targeting the needy in the wake of the coronavirus, a move that could triple the cost of the program. He also widened his emergency declaration to cover the entire country.
Japan’s Abe Turns to More Drastic Virus Measures as Support Sags
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.
“The handouts will be massive as a whole and carry a stronger message,” Masaki Kuwahara, an economist at Nomura Securities, said of the universal cash handout on Thursday. “The bigger the sum, the more impact it can have in terms of preventing a further slump in demand.”
Other economists were less impressed, pointing out that the power of each yen spent would be far less effective.
“Money won’t reach those who truly need it,” said Keiji Kanda, senior economist at the Daiwa Institute of Research. “Single-member households will benefit most from this measure. I don’t think the speed will be much faster, either, because the government had said the 300,000 yen would be delivered in May.”
The shift in policy would likely require changes in an extra budget for the current fiscal year to fund parts of the government’s 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 for struggling households, according to the finance ministry. But 100,000 yen per citizen would amount to more than 12 trillion yen.
Hindering the process of getting the handouts delivered is Japan’s old-fashioned approach to keeping government records. Efforts to streamline Japan’s system for taxation, social programs and other services with an individual identification number have had only a limited impact. A universal cash handout free of income criteria would likely expedite distribution.
Abe, the nation’s longest-serving premier, has dubbed the current crisis as the biggest economic challenge since the end of the second world war. Some analysts see the economy shrinking at an annualized pace of more than 20% in the current quarter under the weight of the virus, having already contracted an annualized 7.1% in the final quarter of last year.
With the global economy facing its biggest slump since the Great Depression, nations are in a spend-whatever-it-takes mode to support growth. Even the International Monetary Fund, a staunch advocate of balanced budgets and a supporter of Japan’s sales tax hike in October, is calling for powerful stimulus measures.
“The government should consider safety nets first, and originally they were planning to give bigger support to those who need help,” Kanda said. “But it doesn’t matter any longer. It’s just giving away money.”
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