Cabinet Approves Supplementary Budget Proposal: Govt Should Establish a Clear Path toward Reducing Fuel Subsidies

Editorial

14:37 JST, June 4, 2026

While it is important to implement measures that support household budgets, an approach that would make markets more wary of fiscal deterioration could defeat the purpose.

Rather than continuing the subsidies for gasoline bills within the framework of reserve funds, the government should clearly define a path toward reducing the subsidies in consideration of fiscal discipline.

The government has approved a supplementary budget proposal for fiscal 2026 totaling ¥3.1135 trillion at a Cabinet meeting and submitted it to the Diet. The main pillar is to create a “reserve fund to respond to the situation in the Middle East and other matters” and allocate ¥2.5 trillion to supporting household budgets and other matters.

The government has decided to provide about ¥5,000 in assistance to each standard household for their electricity and gas bills from July through September, allocating ¥513.5 billion from existing reserve funds, and there is no room to spend more.

Furthermore, since reserve funds could dry out in the not-so-distant future due to the resumption of subsidies to suppress gasoline prices in March, the government apparently established a new framework to replenish the funds.

The aim is likely for the government to show its stance of dealing swiftly with public anxiety over the situation in the Middle East and rising prices.

Since the COVID-19 pandemic, supplementary budgets have exceeded ¥10 trillion each year. Although this budget proposal relies entirely on deficit-financing government bonds, the government appears to have limited the scale to about ¥3 trillion to avoid causing anxiety in financial markets over fiscal deterioration.

However, how reserve funds are used is decided solely by cabinet decision without Diet approval. It cannot be said that there is no risk of giving the impression of lax fiscal management.

In that regard, the subsidies that resumed in March to suppress gasoline prices at around ¥170 per liter are problematic. This is because they will increase demand as a result of suppressing prices, despite the need for conservation.

They also run counter to decarbonization efforts, and are inefficient as they provide excessive benefits to wealthy people and large corporations.

Naturally, the fiscal burden will become even heavier. The government has spent about ¥9 trillion on the subsidy program for gasoline bills since the COVID-19 pandemic. This will continue to cost the government as much as ¥400 billion per month.

Concerned about the weak yen, the government and the Bank of Japan carried out the largest-ever foreign exchange intervention, exceeding ¥11 trillion. However, the effect of the intervention vanished in just one month, with the exchange rate briefly hitting the ¥160-per-dollar range.

If the market’s concerns about fiscal instability intensify, the cycle of a weakening yen and rising prices will continue, effectively nullifying any measures taken to combat inflation.

Prime Minister Sanae Takaichi announced her intention in the Diet to review gasoline subsidies, saying she will “flexibly consider the structure of support measures, including subsidy rates.” While finalizing specific measures, it is necessary to set aside reserve funds for support measures for small and midsize enterprises and other purposes.

(From The Yomiuri Shimbun, June 4, 2026)