The government will approve an economic package of over 17 trillion yen ($113 billion) on Thursday to help households hit by inflation with one-off tax cuts and chart a growth path for the economy beyond the cost-of-living crisis.
The total size will likely reach around 37.4 trillion yen when private-sector spending on projects related to the package is included, in the latest push by Prime Minister Fumio Kishida to get more money into people's pockets as a time when real wages are falling.
The key features of the measures are a tax cut of 40,000 yen per person and 70,000 yen in payouts to low-income households who are exempt from paying income and residential taxes and would otherwise be left out.
A supplementary budget will be formed to fund part of the package, which is expected to be around 13.1 trillion yen, according to sources familiar with the matter. The government plans to get parliamentary approval for the budget by the end of November.
"It's critical to support the disposable incomes of Japanese households through temporary (tax cut) measures and prevent the nation from slipping back into deflation," Kishida said at a meeting with ruling coalition lawmakers.
Kishida wants to return a portion of increased tax revenues in recent years to the public at a time of faltering public support for his Cabinet as inflation continues to squeeze household budgets.
Opposition party lawmakers and critics, however, question the use of tax cuts as inflation-relief measures, partly because it will take time to legislate them.
Around 3.5 trillion yen will be used for the 40,000 yen tax reduction -- 30,000 yen for income tax and 10,000 yen for residential tax.
After ramping up spending to cope with the COVID-19 pandemic and rising prices caused by Russia's war in Ukraine, debt-ridden Japan faces the challenge of reducing outlays to pre-crisis levels.
The government plans to spend around 2.7 trillion yen on inflation relief, around 1.3 trillion yen to encourage firms to raise wages, and around 3.4 trillion yen to rev up the economy through more investment in the chip and other industries. About 1.3 trillion yen will go to tackling the demographic challenge of a declining birth rate.
Rising prices of everyday goods are posing challenges to the government and the Bank of Japan, whose persistence with monetary easing has weakened the yen.
Most of the price gains are attributed to energy and raw materials imports whose cost has been inflated by the weaker yen.
The bout of stickier-than-expected cost-push inflation, in turn, has prompted the BOJ to gradually ease its control on long-term government bond yields, boosting the likelihood that debt-servicing costs will increase.
