Editorial: Boost small and midsize corporate capital spending

April 6 , 2017

According to the Bank of Japan’s quarterly short-term economic survey (tankan) published in March, the business confidence index showed an overall improvement in prospects for all businesses, big and small.

Noteworthy in the survey comprised of data from 11,000 corporations nationwide is that more small and midsize firms have responded affirmatively to seeing improvements in corporate prospect, indicating that they too are starting to feel the effects of the rebounding economy as a result of the economic policies enacted by the ruling Liberal Democratic Party-Komeito coalition.

An upward trend can also be seen in capital expenditures in the form of new buildings, machines and production facilities. This is evidence that more corporations are proactively expanding their businesses against the backdrop of a recovering economy.

When it comes to bringing the economy toward a full recovery, the key question is how to boost capital spending, the engine of economic growth.

Towards this end, we must not lose sight of the realities faced by small- and medium-sized enterprises (SMEs). For instance, a majority of smaller firms struggle to finance capital expenditures. This is especially true when it comes to the micro-enterprises—those with less than 20 employees in the manufacturing industry and less then five staff in the trade and service industries.

For such cases, the government has prepared various financial support programs.

One such example is increased funding in the 2017 fiscal budget to provide tax incentives to boost capital spending in SMEs. This includes the reduction of the fixed asset tax even for small-scale investments such as store remodeling or changing air conditioning units. We urge the government to increase its efforts in making this information more widely known among those who stand to gain from it.

A program to support manufacturing industry SMEs by providing financing for capital expenditures and product development has gained high approval. The program is flexible and responsive, helping to fund everything from new businesses to developing new services, and is being widely utilized. Why not look into expand this program even further?

The tankan also brought to light the growing lack of human resources, a source of grave concern. As such, more SMEs can be expected to proactively invest in factory automation to increase productivity.

From this perceptive, focusing on how to better support small and midsize businesses is increasingly important as Japan enters a crucial phase in revitalizing its economy.