The latest economic package is reminiscent of old politics. It emphasizes the economy and postpones a tax increase. Large pump-priming is designed to breathe life into the economy. It calls for more public works projects, which will be partially financed through construction bonds. It is said that these measures cater to the needs of the 21st century. Is this true?
The economic package, which was endorsed by the cabinet on August 2, has political significance in three ways. First, it is meant to make good on government pledges made during the G7 summit, which it hosted in the Ise-Shima region in May. “Since we called on G7 partners to prepare for the risks of the global economy, we cannot downsize our measures,” said a person close to Prime Minister Shinzo Abe.
Second, the package has touted specific measures on child-rearing, nursing care assistance, and revitalization of local economies, which [the ruling parties] included in their campaign pledges during the House of Councillors election. Third, the government has restored the fiscal investment and loan program (FILP) as a policy means. It allows the government to finance projects at a lower interest rate. During the reign of Junichiro Koizumi, it was criticized as a source of facilitating large-scale projects out of control and was scaled down.
The Liberal Democratic Party leadership has given the latest stimulus high marks by saying that “the package has included public works projects that could have been included over the span of a year and it is significant that the FLIP will be tapped as a financial source.”
It is not fair to conclude from the package framework that it ushers in a return of old politics. What is important is where to allocate money. The package calls for “infrastructure projects for the 21st century.” As the name signifies, these include new investments.
The government prioritizes measures that can enhance the appeal of Japan as an attractive destination for investment and tourism. In addition to construction of a maglev rail line and improvement of key ports, airports and roads, it will step up efforts to export Japan’s farm produce and expertise in infrastructure-building. Meanwhile, the stimulus also includes old-fashioned projects, such as the acceleration of shinkansen construction.
Back in the 1990s, economic measures that relied on public works projects or the FLIP were conducted on many occasions, but none of them returned the economy to the path of sustainable growth. The idea of just allocating money does not relieve people of anxiety about the future. There is no exit from the vicious cycle of stagnant personal spending and investment.
Moves are underway in the LDP to squarely discuss issues that may cause pain. A “subcommittee on economic and fiscal visions after 2020,” which mainly comprises younger members, began discussions in February on the social welfare system and how to change people’s working styles.
The members held intensive discussions on ballooning medical costs due to the aging population and a future vision for the nursing care insurance program. “These are themes that politics have long avoided touching on,” said Shinjiro Koizumi, head of its secretariat. “All of us feel ashamed that necessary reforms have never been put into place.”
The Abe government is stable as never before. Now being raised is the question to what end it will use its political influence. The latest stimulus package is big on the surface, as it includes the FLIP and lending to companies. The content must be worked out from now. The success of Abenomics depends on how well the new cabinet can perform. (Abridged)
