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ECONOMY > Economic Policy

Editorial: Abe, fulfill your obligations to future generations

Japanese Prime Minister Shinzo Abe secured his third straight term as Liberal Democratic Party president by beating his sole challenger, former Defense Minister Shigeru Ishiba, in the Sept. 20 vote for the party leadership.  


We hope Abe, who seized the LDP presidency — and thus the premiership — in 2012 with a pledge to rehabilitate the economy, will put the finishing touches on that project, as well as forge ahead with social security reform and fiscal consolidation — the two main goals he must achieve to fulfill his obligations to future generations.


As Abe has rightly claimed, employment and corporate earnings have indeed picked up under his government, and Japan’s current economic growth, though moderate, is headed for its longest postwar expansion. Yet it also seems true, as noted by Ishiba, that smaller businesses and some areas of the country are not feeling the benefits of the recovery.


During his final three-year term, Abe should implement policy measures designed to ramp up potential growth capacity, such as labor market reforms and deregulation. In its early days, his government promoted growth strategies with greater vigor, but that initial energy has waned. Once growth potential increases, it will become easier to set the course toward an exit from the Bank of Japan’s ultraloose monetary policy, which Abe mentioned earlier in September as being part of his policy agenda.


We urge the prime minister to manage policy with an eye toward not just the current economic conditions but also future generations. The biggest challenge is how to overhaul the social security system in response to the aging and shrinking population and how to address the worst budget deficit among industrialized countries.


To prevent social insurance premiums and taxes paid by today’s younger Japanese and future generations from becoming too burdensome, policymakers must make the social security system more sustainable. Abe has suggested that he will start by focusing on labor reforms for one year and then work on health care and pension reforms over the following two years. But he cannot afford to be so slow.


There are two actions his government must immediately take to curb social security payouts.


The first, which pertains to the health care system, is to introduce legislation to raise the portion of out-of-pocket medical expenses paid by people age 75  or older to 20% from the current 10%. This change needs to happen before large numbers of baby boomers start reaching the age of 75 in 2022.


The second, which pertains to the pension system, is to fully implement a “macroeconomic slide” mechanism designed to restrain pension increases relative to wages and inflation.


Social security reform and fiscal consolidation are two sides of the same coin. The Abe government has twice postponed a planned consumption tax increase and pushed back its target for achieving a primary balance surplus from fiscal 2020 to 2025.


Abe remains committed to raising the sales tax to 10% in October 2019 as planned. But he also needs to work out — and implement — a fiscal consolidation plan, including a further increase in the tax. It is imperative that the government push forward with reforms geared toward the well-being of future generations.


In the recent party election, Abe secured more than 80% of the vote among LDP parliamentarians. In contrast, he won just 55% of the vote among local party members, even if that was the target set by Abe’s camp.


Moreover, public opinion surveys showed that Ishiba enjoyed considerable popularity even among voters with no party affiliation and no bearing on the LDP presidential election. That can be taken as an indication of strong distrust and frustration toward the Abe government among Japanese voters.


In managing his government, we hope Abe will listen to the people’s voices more carefully than ever.


At a press conference immediately after his re-election as party chief, Abe said he wanted to tackle constitutional reform and take up the challenge of creating  a “new Japan.” But the four-point plan for constitutional revision that the LDP presented at this year’s party convention appears to be a half-baked proposal that even the party’s junior coalition partner, Komeito, has yet to endorse.


If Abe’s government rushes to amend the constitution under these circumstances, it may be a mere waste of energy. Lively public debate on constitutional amendments is undoubtedly important for Japan’s future, but Abe would do better to carefully consider what challenges he should prioritize in trying to build a “new Japan.”

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