Aso's $20 Billion for Households Will Fail, Ota Says

By Toru Fujioka and Tatsuo Ito

Nov. 12 (Bloomberg) -- Japanese Prime Minister Taro Aso's 2 trillion yen ($20 billion) plan to aid households won't be enough to help the economy, said former economy minister Hiroko Ota.

``I don't think the assistance will be effective, especially considering its size and the fact that it's a one-off measure,'' Ota said in an interview in Tokyo yesterday. Ota, who was dropped from Cabinet in August as part of an unsuccessful effort by then Prime Minister Yasuo Fukuda to shore up his popularity, said she would have considered resigning if she had to implement the policy.

Aso's stimulus package promises households at least 12,000 yen to spur an economy that probably barely grew last quarter. Some 63 percent of households don't like the idea, an Asahi newspaper survey showed yesterday. The same poll said Aso's disapproval rating climbed to 41 percent ahead of elections that must be called by September 2009.

``Rather than boost Aso's popularity ahead of the election, this plan has hurt it,'' said Yasukazu Shimizu, a senior market economist at Mizuho Securities Co. in Tokyo. ``It's unnecessary to provide financial assistance that worsens the fiscal situation with little benefit for the economy.''

Ota, 54, served from September 2006 until Kaoru Yosano took her job in August. She's now a professor at the National Graduate Institute for Policy Studies in Tokyo.

Falling Rank

In January, Ota said Japan ``can no longer be called top- ranked'' and the country lacks a ``framework to sustain economic growth.'' As minister, she pushed for better use of the labor force to spur productivity and wages.

She said in the interview that Japan should have a longer- term policy to remain competitive once the global economy recovers in the next year or two. Corporate taxes are too high to attract foreign investment and the service sector needs to become more productive, she said.

``The important thing to consider is where Japan will stand once the global economy overcomes the current downturn,'' Ota said. ``Japan's outlook won't get any brighter'' if the economy has the same problems it had before the slowdown, she said.

At 40.7 percent, Japan's company tax rate is higher than those of Germany, China and the U.K. The government set a goal last year of raising productivity 50 percent by 2012. Japanese service workers produce 30 percent less per hour than their U.S. counterparts, the government estimated last year.

`New Phase'

Ota said the global economy is entering a ``new phase'' where nations can't rely solely on the U.S. for growth. The world's largest economy shrank the most since 2001 last quarter.

Japan needs to increase domestic demand and take advantage of Asia's expanding middle class as the population at home declines, she said. In 2050, 40 percent of Japanese will be older than 65, doubling from 2005, according to the National Institute of Population and Social Security Research.

Companies are looking to expand in China, which became Japan's biggest customer in July. Ota said Panasonic Corp. is promoting bidets on toilets in China to capture a bigger share of a market with a population that's 10 times bigger than Japan's.

Ota said the current slowdown shouldn't persuade the government to abandon its goal of balancing the budget by 2011. Japan set the target in 2006 as a step toward reducing the public debt, the world's largest.

``The goal was set to be achieved by changing the tax system and boosting economic growth in the mid-term,'' Ota said. ``It's too early to give up because of the economy now. We shouldn't even be discussing whether to keep the target at this point.''

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net; Tatsuo Ito in Tokyo at Tito2@bloomberg.net