Cabinet OKs Y5.5 tril stimulus package to cushion impact of sales tax hike

Hey! Abe-san's got a great "new" idea. Why don't we massively borrow money to fund unnecessary construction projects. You know, give to the elite in the economy, in the hopes that it "trickles down" to the rest of us? Then, let's double taxes on EVERY SINGLE THING NORMAL PEOPLE BUY, while still hoping that that $55 Billion we tossed to the elites will somehow "cushion" the blow this will have on consumer spending (60% of the economy, by the way.)

How original! I'm sure it will work~ Our Fearless Leader, Prime Minister Hashimoto, er, Abe, is really thinking outside the box on this one! (Little wonder that "circle" was chosen as 2013's word of the year: we're definitely running in circles where Japan's economic policy is concerned!)

I wonder where all this "stimulus package money" comes from. Someday someone will have to pay for it. It will not be Abe and luckily it will not be me. I pitty the next generations of japanese.

It looks as though the national government believes that default is now inevitable, and that the politicians are getting what they can while the getting is good.

That's exactly what this. This is plunder before the inevitable collapse and it started months ago. In my area new constructions projects have been starting up at an incredible rate for the last few months. I don't need anyone to give me any info about it (which are no doubt lies anyway) because I know what my eyes see. The government, bureaucrats and their cronies know exactly where it is going and they are grabbing everything they can now.

The last government came to power on the platform that they were going to cut government spending and the elite bureaucrats and their compliant media smeared them and destroyed their credibility at every point. They Japanese people bought the lies and any effective opposition has now been destroyed for at least a generation. They have effectively turned Japan into a one party state with a neo-fascist at the helm. Why are the media so compliant? Why has Abe been continually praised by the mainstream media when he has done nothing of any note? Why were the minshuto prime ministers all destroyed by the media after only a few months in office, with their phony approval ratings and constant negative stories? This all stinks and shows collusion between the government, the press and bureaucrats and yet no one is asking any questions. This is a very dark road that Japan is going down.

@ homeland - please give some examples of the "strong backing of structural reform" Abe has implemented ie. regarding women in the workforce. The lip-service he has given - similar to his "recommendation" to employers to increase salaries - are completely toothless and having little effect.

He`s basically using tax money to achieve everything. If they got their spending in order taxes would decrease not increase. A small group will benefit.

Hey! I've got a GREAT new idea!

Let's raise taxes! I don't think everybody's ever thought of that...

AND...

Let's increase deficit spending on cronyist projects! I don't think anybody else has ever thought of that either.

Japanese government at the cutting edge....

Total BS, more of the government taxing the poor and giving kick backs to their friends in construction.

Good luck Japan. It looks as though the national government believes that default is now inevitable, and that the politicians are getting what they can while the getting is good.

Since there have been no discussions whatsoever to reduce spending in any part of the government, that debt is at one thousand trillion yen, that 26% of all revenue currently collected goes to pay just the interest on this debt (which is still growing at a frightening rate), and that as the population continues to decrease, and retirees begin to claim pensions and benefits, and revenue will be falling sharply over the next 30 years, it looks like there is no possible way to avoid default.

Were the government a company or corporation, it would have gone bankrupt long ago, and the officers arrested for fraud.

What is worse is that most developed countries around the world are following Japan's path.

Abe-nomics is ineffective Trickle Down Economics with a fresh coat of paint. It's an invitation for corporate Japan to climb to the top on the backs of the middle-class, damn the consequences. And economic history over the past 40 years has demonstrated aptly that this approach simply doesn't work.

The key issue with Abe's so-called stimulus plan that folks like falseflagsteve and homeland are clearly oblivious to is that Abe's plan does virtually nothing for folks who are already hard-working, productive members of society, but have been languishing for the eight consecutive year of stagnant salaries, bereft of well-earned pay raises, coupled with reduced bi-annual bonuses, and topped off with ever-rising fuel costs ranging from gasoline to heating oil to natural gas. The average family has seen its discretionary spending buget cut by some 20~30% across the board due to rising fuel costs alone.

The expression "Robbing Peter to pay Paul" springs to mind. While the upcoming sales tax increase will take money from Japan's hard-working lower and middle class and ostensibly put it towards paying down the public debt, it's not at all clear how paying down this debt will happen when a substantial chunk of this new revenue will be sunk into a new 5.5 trillion yen scheme. How do new jobs help people who already have jobs in the here and now? Ultimately, this new stimulus package does virtually nothing to alleviate the impact of the tax increases on the average family. Nothing at all.

That Abe and his advisors continue to believe it's a valid course is as stunning as it is asinine. It's abundantly clear that Abe-nomics is little more than a stop-gap Band-Aid measure lacking, as economist Koichi Hamada points out, any vision for sustaining true economic growth after the hand-outs have all but dried up.

Create jobs!? My factory is installing faster assembly lines so that they can lay people off and save money. That is where the money is going. BNlightened. You are spot on with your comment.

My friends and I had a good laugh at the headline. So what was the point of the tax hike again?

So, he needs to use taxes and money from previously allocated budgets to put into the economy and put the nation further in trouble because of the damage that a tax increase is going to do to the economy? Here's an idea: just don't raise the tax and use the money in a way that doesn't 'necessitate' it. STOP the public works projects as well. The logic disconnect here is astounding.

Where is the 5.5 trillion going? How can there be no detail on exactly where such a large amount of money is going??? Imagine a listed company telling it's share holders that! But that is exactly what the tax payer is...a share holder in the wasteful company called "Government" Why are the share holders asking for me detail on where THIER money is being spent?

Japan has never wanted to engage in real international trade (by trade I mean we buy of each other) and that is a problem, but China and Korea are going down the same road. The model that Japan lends the US lots of money, so that the US can buy their products was always bound to fail. Japan will never see that money again but it was never intended to. Now the US has a similar stupid model with China and that is also bound to fail. When Japan became a developed economy that model should have been scrapped and meaningful two way trade implemented. Unfortunately it is at least 30 years too late now. The Japanese model of protecting it's domestic markets but expecting the rest of the world to buy it's products is broken and the structural reforms are way past. Group orientated society might be great to initially build the nation but it has a tendency to stagnate and to choke new ideas. Now all that is left is lots of selfish groups protecting their own interests at the expense of the whole. Agriculture, construction etc. will continue to protect their own interests even when they are standing on the deck of a sinking ship. Japan is in by far the most desperate situation of any developed country because when the economy crashes here there won't be much left. At least Europe and the US have well built and planned towns and the capacity to feed themselves.

I read that even people in areas which receive stimulus are wary of what's ahead for them. The link won't paste correctly so you have to do a search for the entire article.

Some excerpts: "Residents here say the building boom is a throwback to Japan’s troubled 1990s, when far-flung regions across the country tried to build their way back to prosperity. And they worry that, like previous attempts, growth will not last. “How long before all this winds down again? That’s what everyone’s worried about,” said Masataka Matsuo, a construction worker reinforcing an irrigation ditch several miles away from the city center.'

"Still, with no guarantee the spending bonanza will continue, even construction companies are hesitant to ramp up hiring or investment. A growing number of public construction projects are finding no bidders because of a shortage of workers and machinery. “There’s lots of work, but it’s too risky to start expanding again. Government is so fickle,” said Tsuyoshi Kishimoto, president of Kishimoto Gumi, one of Saga’s biggest contractors."

"New York Times" : "A Public Works Boom in Japan Has Echoes From the Lost Decade" December 8th, 2013

We'll all see the real effects by next GW.

As for me, I'll be stocking up on non-perishables and other bigger ticket items before the tax rise. After that? Very minimal spending.

5.5 trillion yen, that slightly more than what the J farmers get evry year in handouts, now Abe has said youve got 5 years to get your frap together then its all over. still thats another 25trillion yen that could be better spent on schools/hospitals/retirement pensions.

Great, just throw more money at those who are already rich, construction companies, then give 10000 yen per child to normal people. Let them eat 20 pieces of cake? How about this: stop attacking the value of my Yen/Savings by unlimited printing. We all know this is just to pump up stocks without them ever having to actually have good ideas and hard work. This is yet another give away to the rich to look like they are helping the poor; amazing!

I feel Japan is always unjustly criticized.

Japan is not the only country deserving of criticism, but the main problem with Japan is that it's wounds are all self-inflicted.

Quite often, policies are enacted with good intentions (or not so good), and the results turn out to be much different, often entirely opposite of what was expected.

Japan's biggest mistake over the past 50 years was to be too protective of it's domestic market. Since the domestic market consumes a large part of what domestic producers make, it was not as necessary for domestic producers to work as efficiently. Also, since the domestic market was limited to the few domestic companies, these companies have been able to collude together to control the prices of all goods and services, rather than let the market determine the prices. The end effect of all of this has been to decrease economic efficiency, increase the cost of living, and lead the country into deflation and a decreasing population. Anyone here who has worked in a Japanese company knows how dysfunctional the Japanese corporate system is.

Had foreign companies had an equal chance to sell in the Japanese market, the domestic companies would have had to become much more efficient, price fixing would not be possible, and the overall cost of living would be much lower. With a lower cost of living, people would have more disposable income, and would be more able to afford to have children. Had JGBs been widely sold on the world market, the Japanese government would have had to spend more responsibly, as the interest rates on the bonds would be determined by the world market, and not almost entirely by the BOJ bureaucrats and a handful of domestic "mega" banks.

Other countries have their faults as well, and they are going to be feeling the pain soon enough. But not as soon as Japan.

Japan is headed toward bankruptcy in the next 7 years.

Do you think it will take that long? Japan already has the world's largest national debt and has no hope of ever getting rid of it. Abenomics has only increased this debt. This stimulus package is a load of rubbish! The corporations get tax cuts, which they have already stated they will not pass on to their staff as salary increases, low income earners get a measly one-off payment of a hundred bucks, while the majority of the population get nothing except being stuck with the bill. Bend over people and let me show you where the third arrow is going!

A one off payment of 10,000 per child?? Wow. Can almost taste the resounding "Gee, thanks". I dont understand the finer points of economics to be honest but my predictions are thus...folks will stop spending, forcing shops to cut prices or offer too-good-to-be-true deals in the big ticket sectors. Higher end supermarkets will see a fall in spending, maybe not dramatically at first but it'll be noticeable by the time tax has been kicked up to 10%. So on and so forth. Apparently, tobacco is not getting a price hike..is that right?? If not then why the heck not?! If there's any market at all that will earn the pennies its got to be one thats addictive.

If the Japanese people had known as some of us have that this is what they would be getting with them, would they have voted LDP? Answer the question please even if you don't like the question.

Japan has the largest asset in the world and long term GB interest rate is the lowest among major countries.

May be but the countries that owe Japan money have no intention of ever paying it back even if they could. The government bond interest rates are completely unsustainable and any move upwards and it will break the economy. If you don't think Japan has severe problems in their economy you are in denial. A nation state can't function with a broken economy and Japan's economic model was due drastic structural reforms years ago but a combination of selfish interests and xenophobia didn't allow it to happen. Thirty years ago was the time to open the economy but Japan was selfish in the extreme, protecting it's own interests and giving very little back. We want the rest of the world to buy our products but we don't want anything from you. The sort of superior attitude that you display in most of your posts is the reason why Japan is in such a dilemma but you refuse to see it. Perhaps you should go back to sakoku because most of you never really left and be honest it is what you want anyway.

Currently replacing a lot of my stuff with new ones before the tax-hikes, like a new bicycle. In short stuff that is due to be replaced within the next 2-3yrs.

The tax-hikes is only part of it, many shops will also round prices up rather than down. A JR worker told me 2 months ago about how tough it will for them to update to the new prices on 1st April.

is heavily weighted toward construction projects.

"A Bridge Too Far!" And to those that know what "that" was about, the end was a disaster. Not a good omen.

its desperate measures for desperate times. Its a never seen before finance-economical project on a global scale. Most people are right about it but they phrase it according to conviction. it IS in the hands of corporations and unless you want to resort to stalinist communism thats where it will stay right now. So by the grace of their benevolence and spending of tax, the lower chunks if you plot it on a 2d graph can be employed or not. Its reality, not wannabe. Its not utopia, and its not just japan, trust me on that. If you can fend for yourself you can fend for yourself, if you cant then you're either screwed or lucky. There will be a drawback, thats inevitable but for now everyone around the whole f'inkg world is just trying to keep it running in the only way they know. So brace yourself, take care of what and who you love and like and know that complaining will relieve stress but wont change anything

Meanwhile Japan had a quadrillion (15 zeros) yen in debt and more than 220% of GDP in 2012.　Only Zimbabwe had more at 240%. https://www.cia.gov/library/publications/the-world-factbook/rankorder/2186rank.html Soon and very soon.

falseflagsteve is 100% correct here. The job creators need confidence so we can do what we do best: Create jobs.

Except that they won't. They'll just make the employees they already have keep working extra hard for no extra pay, while putting the extra government cash on top of the huge piles of money they've already hoarded from previous stimulus packages. It's like communism - looks nice on paper, never works in reality.

Just to be clear, that national debt we're talking about is not debt with other countries. It's domestic debt, which translates to a whole different set of issues.

" . . . folks will stop spending . . . "

That's precisely what I'll do. I haven't seen a raise from my company in 3 years, and there's none forthcoming. In fact, the base starting salaries for incoming staff has been reduced this year in order to deal with the bleak economic outlook.

So I really don't know how I'm supposed to offset the extra 3~5% increase simply living in Japan is going to cost my family when there's no foreseeable change in my income. The only alternative is stop buying things or buy things that are far cheaper than usual.

Which will naturally lead to ... wait for it! Deflation!!

(and the crowd goes wild as Shinzo Abe strikes a victory pose over the ashes of the Japanese economy...)

Pochan,

Please elaborate. A nation that fails to meet her debt obligations is in essence, a default. Their sovereign bonds are of junk level.

The 10 year JGB - Japanese Government Bond has moved from 0.60% interest rate per annum, to 0.67% interest rate per annum, in the past 30 days. The 30 year JGB, has moved 11 points more expensive, from 1.61% to 1.72%. The lenders are becoming concerned about the level of debt in Japan. Japan is headed toward bankruptcy in the next 7 years.

tinawatanabe

fair enough apologies then

"Japan is headed toward bankruptcy in the next 7 years."

How does a country default on obligations that are basically all denominated in its own fiat currency? In other words, how does Japan run out of yen, when it has the ability to issue as much yen as it wants?

I have yet to hear a clear and specific explanation of this.

Jeff Lee,

When you print currency, the people who have savings in your currency have less valuable savings. Their Yen is worth less because of your printing. It is a default, almost as bad as not paying someone. If printing money didnt hurt savers and inflation didnt tank economies, no country would have ever defaulted in the past.

Are you joking, Jeff?

If you have x number of goods and you increase the money supply, what do you think will happen to prices? Do you think more money in circulation will mean a drop in prices?

Printing money is not a solution. If printing money was a solution, why have budgets? Why not just print money continuously, forever?

Im already paying residents tax on my monthly salary every year, now Im also to pay a 10 percent consumption tax as well. Excuse me if i dont jump for joy

May be but the countries that owe Japan money have no intention of ever paying it back even if they could. The government bond interest rates are completely unsustainable and any move upwards and it will break the economy.

Your first sentence basically means that those countries that have no intention of every paying it back will cease to exist as a country. Do you even know what you are implying?

As to your second sentence, a move upwards simply means that these financial institutions that hold many of these JGB are lending or investing. It's simply a net sum zero game on Japan's balance sheet which many have failed to understand.

"When you print currency, the people who have savings in your currency have less valuable savings."

Japan has been engaged in QE for the past 13 years. Are your yen savings a lot less valuable than before? Mine certainly aren't. 10,000 yen goes a lot further in Tokyo than before, and sure buys a lot in Bangkok these days!

"no country would have ever defaulted in the past."

Greece? Greece's problem IS that it can't print its own money. Argentina, etc. defaulted on their foreign obligations, which Japan basically doesn't have.

Next attempt at an explanation, please.

Money printing does take place - in Canada, 13% of the increase in the money supply made possible by the Bank of Canada is printed so that cash that needs to be used is available in the banking industry. It is called the reserve ratio.

Quantitative easing means that the Bank of Canada (in my country of Canada) would lend money to major banks in my country or buy government debt and give the money (electronically, most of it) to the government for spending. But the government of Canada will never pay the debt back and the Bank of Canada head is appointed by the government. So, it is just a game of shells.

pochan You got me wrong. I have no superior attitude. Remember I'm not native English speaker. I'm merely trying to defend Japan from different perspective because I feel Japan is always unjustly criticized. I may have desperate attitude but not superior attitude.

"Are you joking, Jeff?"

No, I'm citing reality. You are citing a theory for which there is no evidence. I'm citing evidence that disproves the theory, ie a relatively strong yen after 13 years of QE.

BTW, "print money" is a figurative expression, used by journos who need to write concise headlines. QE isn't "printing money" but making more reserves available for lending. Most lending is real estate-related, in which case no money is printed anyway.

Of course Japanese know and voted LDP. Japan has the largest asset in the world and long term GB interest rate is the lowest among major countries.

Your first sentence basically means that those countries that have no intention of every paying it back will cease to exist as a country. Do you even know what you are implying?

No it doesn't doesn't. But I am sure you will twist whatever you read to suit your point of view.

One step at a time, can't just click the fingers and make everything hunky dory in one move.

Some are content to just simply sit n moan no matter what the situation. They probably are the least productive in their office and are the first ones to put their hand out for their pay cheque.

Unhappy about the financial situation then do something about it.

falseflagsteve is 100% correct here. The job creators need confidence so we can do what we do best: Create jobs. Structural reform is happening as well; Abe has already demonstrated a strong backing for improved conditions for working mothers and opportunities for women in executive positions. These things take time to develop roots, sprout and bear fruit.

The fact is that Japan's 5% sales tax is excessively low, and while I agree it should not be applied to fresh food and essential clothing, there's no reason a 10% sales tax should not be in place for other items.

Poor people like to moan about government policy amongst other things. they often complain about how their miniscule taxes are spent.

Go, Go Abe, you are making Japan better for those who innovate and work hard. Of course some of the wrong sort will benefit but most who do will be hard working folk and those who know how to adapt to the modern world rather tahn moan and groan all the time.