2022-01-25-牛津经济研究院-Japan_Why_the_supplementary_budget_flatters_to_deceive_4页_201kb

Japan Supplementary Budget Analysis Summary

Core Content

The latest supplementary budget in Japan, approved in December 2020 for FY2021, is the second-largest in the country's history, totaling ¥32 trillion. Combined with the main budget, the FY2021 total budget reached ¥138 trillion, second only to FY2020's ¥175 trillion. However, despite the massive budget size, the actual economic impact has been limited due to slow implementation and a high level of unspent funds.

Main Points

1. Budget Size vs. Economic Impact

• The FY2020 budget was the largest in history, but ¥31 trillion was left unspent, indicating that the fiscal impulse was smaller than the headline figures suggest.
• The FY2021 supplementary budget adds to this trend, with a significant portion allocated to support measures that may not immediately boost private demand.

2. Slow Implementation

• The slow pace of budget deployment has constrained the effectiveness of fiscal measures.
• This is attributed to structural issues within the government, including inadequate digitalization of public services and chronic labor shortages in the construction sector, which hinder public investment.

3. Composition of the Supplementary Budget

• Covid-related supports account for 63.1% of the FY2021 supplementary budget, including grants for SMEs, healthcare measures, and employment support.
• Support for troubled firms and households makes up 48.9% of the total, with a focus on cash grants and subsidies.
• Long-term growth strategy measures constitute 19.8% of the budget, including support for semiconductor production and digital transformation initiatives.
• Public investment is a smaller portion (5.5%), mainly focused on disaster prevention and national resilience.
• Other allocations include self-defense spending and miscellaneous items.

4. Economic Impact Assessment

• The budget is expected to prevent further economic deterioration but will not significantly boost growth in the short term.
• Private consumption will see only a limited increase, with an estimated 0.2% contribution from cash benefits to households.
• Public-sector contributions to GDP growth are expected to be modest, with a 0.24ppt increase from government consumption and a 0.05ppt increase from public investment.

Key Information

• Unspent Funds: In FY2020, ¥31 trillion of the ¥176 trillion budget was unspent, with the largest portion being for SME loans (¥11.3 trillion), public investments (¥4.7 trillion), and social security (¥4.4 trillion).
• Covid-Related Spending: By March 2021, only 65% of the total pandemic-related funding had been spent, highlighting the challenges in timely implementation.
• MPC Analysis: The marginal propensity to consume (MPC) for direct payments in 2020 was 0.16, significantly lower than in other developed economies, suggesting that a large portion of the benefits may be saved rather than spent.
• Long-Term Allocations: A growing share of the budget is allocated to "funds" for long-term objectives, which may not provide immediate economic stimulus but are crucial for future growth.
• GDP Forecast: The current GDP growth forecast for 2022 is 3.1%, with private consumption as the main growth driver, and limited contributions from public spending.

Conclusion

While Japan's supplementary budget reflects a strong fiscal response to the pandemic, its effectiveness in stimulating the economy is constrained by slow implementation and a focus on long-term growth measures. The budget's size does not equate to its immediate economic impact, and the unspent funds highlight the structural challenges in efficiently deploying public resources. The economy is expected to recover gradually, with private consumption playing a central role, but public investment and long-term policy measures will be critical for sustained growth.