It's too early to end eco-car subsidies
The Yomiuri Shimbun (Aug. 1, 2010)
Why would an economic stimulus measure that has produced good results be discontinued?
The government on Friday decided to end a subsidy program for people purchasing environmentally friendly, energy-efficient automobiles at the end of September as scheduled.
Economy, Trade and Industry Minister Masayuki Naoshima said: "It [program] was implemented as a temporary and unusual measure. It will automatically end at the end of September."
But the pace of economic recovery has been slow recently. We consider now to be a bad time to lose a measure that helps prop up consumption. In business circles, too, there are strong calls for the continuation of the measure.
Money to pay for this program could be found in the 1 trillion yen reserve funds included in this fiscal year's budget for measures to help the economy stay afloat. The government should reconsider its stance and continue to provide the so-called eco-car subsidies for the time being.
The subsidy program was first introduced by the administration of former Prime Minister Taro Aso as a temporary measure effective through the end of March this year. The following administration of former Prime Minister Yukio Hatoyama extended it for another six months with an additional budget allocation.
The measure was favorably received by consumers, as they could receive up to 250,000 yen for a passenger car. Coupled with an eco-point system targeting energy-saving home appliances, the eco-car subsidies have significantly contributed to an expansion in consumption.
As a financial resource for the consumer-supporting measure, the government earmarked about 600 billion yen in a supplementary budget for fiscal 2009. This amount was enough to assist in the purchase of 4.5 million automobiles, and funds have been used or are set to be used for the actual purchase of 3 million cars.
There is about 100 billion yen left in subsidy funds and two months left before the expiration of the measures. But the planned termination of the subsidy program has caused some consequences already.
Buyers hitting brakes already
Purchasers will not be able to receive subsidies if they do not register their new cars by the end of September. With popular models, it often takes more than two months for purchasers to receive their cars after signing a purchase contract.
Some customers reportedly have given up on their car-buying plans after dealers told them that they might not be able to receive subsidies even if they made a purchase now.
There is reason to worry that automobile sales will drop significantly with the completion of the subsidy program.
Germany introduced a new car purchase support system in January last year, and abolished the measure in September after using up its budget funds. New car sales then decreased by more than 20 percent from the period of the support system, and remain sluggish.
Taking into account an anticipated decrease in sales, Toyota Motor Corp. plans to reduce domestic production by about 20 percent from October. If automakers, which constitute one of the nation's major industries, downshift their production, then industrial output as a whole, whose pace of recovery has already slowed, may cool down even further.
Although the nation is facing severe fiscal conditions, the termination of the subsidies would seriously affect the economy. Government officials should exercise their wisdom to find a way to continue the subsidy program while giving consideration to both state finances and the economy. For example, reducing the number of eligible models and the overall subsidy amount would be a possible scenario.
(From The Yomiuri Shimbun, July 31, 2010)