Treasury's corona tax vs. de facto basic income: a debate on Japan's economic policy in the not-too-distant future

With the spread of the COVID-19, a state of emergency has been declared nationwide. The spread of the infection has not yet been controlled, mainly in the Tokyo area, the Kinki region, and Fukuoka Prefecture.

 The declaration of a state of emergency is set to end on May 7, after a major holiday season. Media reports suggest that the government will decide whether to postpone the declaration of a state of emergency during major holiday season.

 The hard work of medical professionals and those who maintain the medical infrastructure is conveyed every day through social networking sites (SNS) and mass media. In order to reduce the stress on health care resources as much as possible, we are being asked to more actively refrain from our economic activities. However, it is also clear that this has made our economic life, physical health and psychological stress much more severe.

 Unless the spread of the infection ceases, such a predicament will be difficult to resolve drastically. However, with the right economic measures, these woes can be alleviated to some extent. This means that we need the government to spend money properly and defend our lives.

In Japan, however, the evils of bureaucracy are pronounced, and the austerity system of the Ministry of Finance has been in full force during this crisis. Austerity is the term used to describe the government's stance of spending as little money as possible. The public must contend with the threat of infection and at the same time with this disease of austerity in the Treasury.

 The Treasury's austerity sickness is truly formidable.The government recently adopted a "fixed benefit" of 100,000 yen($927) per capita as an economic measure for the COVID-19 crisis. The policy itself is a very good thing.

 But it was the Ministry of Finance that was vehemently opposed to the adoption. For this reason, the supplementary budget was initially prepared with 300,000 yen($2781) in benefits, tightening the income restrictions.

 The proposed 300,000 yen($2781) benefit seems to be a larger amount, but this is a mistake.First, under the 300,000($2781) proposal, income would have to be significantly reduced to receive it due to COVID-19.
Moreover, since the benefits are provided on a household basis, the benefit is only 300,000 yen, no matter how large the family is. That's why the total budget for the 300,000-yen proposal is only about 4 trillion yen. 300,000 yen seems like a lot at first glance, but that's a misunderstanding. It shows the vicious austerity principle of the Ministry of Finance in squeezing the total benefits as much as possible.

 On the other hand, the 100,000-yen package has a total budget of 12 trillion yen, which is 8 trillion yen more than the proposed 100,000-yen package. What's more, those whose incomes don't fall by half due to the economic crisis, and low-income earners with large families, will also benefit.

Above all, the biggest drawback of the 300,000 yen proposal is that people will have to prove that their income has decreased by self-reporting at the municipal office. Only after self-certification is accepted will benefits be paid. This alone takes a great deal of effort and time. For freelance workers, it can be difficult to get the documents to prove their reduced income in the first place.

 This is not the only problem. If there are unscrupulous business owners, they will deliberately cut their employees' salaries in half so that they can get 300,000 yen in benefits. In other words, it won't reach the people who really need it.

  The Democratic Party of Japan (DPJ) and others are adamant about the 300,000 yen benefit and have criticized the proposed supplementary budget. It is nothing more than a party-political decision that does not consider the lives of the people.

 In comparison, distributing 100,000 yen to the entire nation is the most wasteful way to go. It's faster than just not needing a qualification check.It's important to pass the supplementary budget quickly.

The reason why the government did not initially adopt the 100,000 yen proposal was due to the resistance of the Ministry of Finance. Of course, it's also "fair" for the wealthy to collect more tax on their tax returns at the end of the year. However, if we focus on simply turning benefits into consumption, we know from empirical analysis that many high-income earners also turn benefits into consumption, much the same as other earners. In addition, if the benefit itself is treated as temporary income, the benefit is 100,000 yen less than the deduction, so everyone is tax-free as long as there is no other temporary income.

 As a rebuttal to the proposed 100,000 yen benefit, there is a claim that when the fixed benefit was implemented in the past, only about 30% of the money was consumed and the rest went to savings. And the argument that savings were a waste of money still persists. But I would have to say it's wrong for three reasons.

(1) By spending money on savings, it will contribute to relieving future anxiety.
(2) Savings are also future consumption, so if the infectious disease season is prolonged and households suffer, they may turn to consumption; and (3) If society as a whole can afford it, savings will be used for active consumption when the infectious disease season is over, and also as a source of investment through financial institutions. The idea is that a strong economic recovery is possible because society has more room to spare.

 In short, there is no such thing as wasted money. The "savings = wasted money" narrative is nothing more than an amateurish urban legend happily propagated by the Ministry of Finance.

Now, the question is whether this flat-rate benefit will be paid in one go, and it is still unclear when the spread of COVID-19 will end, even in Japan alone.

 Not only that, but we don't know the world's trends at all, so we need to be prepared for a long-term battle. At that time, we need a system to support our lives.

 Here, I would like to introduce an interesting policy on benefits proposed by Associate Professor Yosuke Yasuda of Osaka University. The plan is to provide 10,000 yen per week to all citizens until the end of the infection.

In this case, government spending would total about 5 trillion yen a month. Sixty trillion yen is a huge amount, but it is equal to what Japanese economic experts have calculated to be the economic loss of a year-long COVID-19 outbreak.

 In fact, we don't know if the infection season is over in the summer or if it will last for years. The good thing about the Yasuda plan is that the government's commitment to continue supporting it as long as the infectious period lasts is strong.

 Moreover, this commitment is not just a verbal promise. It is a "promise" that has a mechanism that involves execution.

 Of course, there is also a plan to distribute 100,000 yen or 200,000 yen per person in a lump sum at the peak of the infectious season, and then again according to changes in the situation. However, if the infection becomes unexpectedly prolonged, each time a budget has to be drafted, there is a greater chance that measures will be delayed.

The author recently had the opportunity to report to a study group of LDP Diet members who have a strong interest in reflationary policies. At a meeting of the Study Group on Economic, Social and Cultural Policy (Organizer: Councillor Junko Mihara; Secretariat: Hosono Goshi; Nagashima Akihisa), a proposal was put forward for a large reserve fund to be included in the supplementary budget.

 Since the amount of reserve funds is a blue ceiling, it would be desirable to set aside trillions of yen of reserve funds in the supplementary budget now to prepare for not only the Covid-19 crisis, but also for multiple natural disasters. It is also possible that the government and the Bank of Japan will work together to build a new type of anti-corona fund in the 100 trillion yen range to realize the Yasuda plan mentioned above.

 In any case, a combination of policies that defer or exempt living and working capital expenses such as taxes, social insurance, rent, and utility bills, based on fixed benefits to address this uncertainty, would be a near pass mark for economic measures during the infectious period. As an aside, "burden deferral" needs to be combined with appropriate relief so that the burden doesn't come crashing in all at once.

 And after the end of the infectious period, it would be desirable to have more stimulus policies through the coordination of fiscal and monetary policies so as not to depress the economy as a whole. The most likely option at that time would be a consumption tax cut.

 The author strongly recommends, however, that permanent consumption tax cuts be implemented from the infection period. Sustained flat-rate benefits (de facto basic income) and permanent consumption tax cuts in an infectious period will serve as an anchor to stabilize a highly uncertain economy.

But in Japan, an austerity disease, led by the finance ministry, is blocking economic measures during the infectious period. I have pointed this out in previous posts. Moreover, it is only in the midst of this economic crisis that the Ministry of Finance is willing to tighten its grip. For now, the Ministry of Finance is keeping quiet, but sooner or later they will come up with a "new corona tax". For example, the Ministry of Finance wants to accept the issuance of deficit bonds for now, and then introduce a corona tax when the situation has run its course, so that the public will bear the burden for a long time. As in the case of the Great East Japan Earthquake, this corona tax will also be politically linked to a further significant increase in the consumption tax. The Finance Ministry must be knocking Japan into a tax storm. This seems to be the hidden intention of the Ministry of Finance to keep Japan out of prolonged stagnation.

 In order for the public to stop this, the power of SNS, which has a much stronger influence on public opinion than the subprime crisis and the Great East Japan Earthquake, is needed, and it is important for the public to use SNS to monitor the irrational austerity disease at the Ministry of Finance and use the power of the public to defeat it.


HIdetomi Tanaka (Professor, Jobu University)