Japan Institute for National Fundamentals

　
The economic impacts of the new coronavirus pandemic are growing serious. As the infection is spreading from China to Europe and the United States, the movement of people has stopped due to immigration restrictions and curfews. Stock markets around the world have been falling in a panicky manner amid the concern that how long the pandemic might continue. In Japan, the falling number of foreign tourists, restraints on events and outing, and supply chain disruptions have shocked both supply and demand. In response, Japan has begun to consider an urgent economic stimulus package.

Specific measures under consideration include cash benefits, voucher distribution, a consumption tax cut and the enhancement of a point return system for cashless settlements. What measures should be chosen? Objectives must be clarified when policy measures are chosen. The presence of mixed objectives might have confused discussions.

Cash for livelihood support, vouchers for business sector relief

At present, two serious problems must be addressed urgently. First, freelancers and sole proprietors have faced livelihood difficulties due to their sudden loss of business orders. Second, tourism, food service and event-related sectors have lost customers almost completely.

As for the first problem, the recent emergency economic stimulus package called for providing freelancers and sole proprietors with interest-free loans. This measure, though being appreciable, would leave those people plagued with loan repayment obligations. Bold cash benefits (e.g., 100,000 yen per person) may be required to help make up for income losses.

Regarding the second problem, the government must make up for the sudden demand loss in the affected sectors. The distribution of travel coupons and meal vouchers would be effective. Under the current voluntary restraints, however, consumers will not use them. Therefore, the government should announce that those coupons and vouchers are ready to be used as soon as voluntary restraint requests are lifted. However, the distribution of premium vouchers through local governments as in the past would require huge cost and work at those governments. Internet and other private business operators may be used for distributing electronic vouchers.

These measures have specific targets and objectives. Cash benefits or vouchers will be chosen in line with targets and objectives.

Consumption tax reduction would be problematic

After taking these bold short-term measures, the government would have to stimulate economy to address a global recession. They would not be effective unless the containment of the new coronavirus pandemic comes into sight, with market players’ anxiety placated. This is clear, given that the recent monetary actions failed to produce any effect. The government would also have to address global credit insecurity caused by the plunge in oil prices.

A consumption tax cut would be considered in this context. Problems with this measure include massive time for preparations and the requirement for the tax to be raised back at some time to cover social security. Political decisions have to be made considering a mountain of problems including retailers’ preparations such as cash register modifications and hesitant buying before the tax cut on the one hand, and the effect to change consumers’ mind on the other hand.

It is important to boldly focus on measures having specific targets and objectives, rather than any conventional pork-barrel spending measures.

Masahiko Hosokawa is a special professor at Chubu University and a former director-general of the Trade Control Department at Japan’s Ministry of Economy, Trade and Industry. He is also a Planning Committee member at the Japan Institute for National Fundamentals.