The government’s annual “Basic Policies for Economic and Fiscal Management and Reform,” known as “honebuto no hoshin” (big-boned policy outline), offers a great opportunity for Prime Minister Yoshihide Suga.
Through it, Suga can give a resounding answer to the criticism that he has no clear vision for the future of the nation.
However, the draft of his first honebuto economic policy vision, unveiled on June 9, does not offer a clue to the basic principles underlying his policy programs.
The draft says the Suga administration will expand investment to achieve four key policy goals to lay a foundation for renewed economic growth in the post-COVID-19 era. The priority policy goals cited by the document are a smaller carbon footprint, digitization, regional economic regeneration and higher fertility.
All are policy challenges inherited from the previous administration of former Prime Minister Shinzo Abe. Putting aside the lack of novelty, the draft, unfortunately, fails to give a clear idea of where Suga is trying to lead the nation with regard to the most crucial policy areas.
Take, for example, the goal of reducing Japan’s greenhouse gas emissions, which has been raised under Suga’s initiative.
All that the draft policy outline says about carbon pricing is that the administration will “promote expert and technical discussions” on the issue. But carbon pricing–putting a price on carbon dioxide emissions as an economic incentive to reduce them through such means as a carbon tax or an emissions trading program–should be the centerpiece of the strategy.
The weak-kneed stance toward the approach, which apparently runs counter to Suga’s slogan of “breaking down the vested interests,” seems to reflect his fear of a backlash from the business community.
The draft policy outline also fails to delve into the vital question of how to fix state finances, which are in a crisis.
In the last fiscal year, the government put together three massive supplementary budgets and issued some 80 trillion yen ($731.27 billion) worth of additional government bonds to finance these spending plans. The draft policy outline does not contain even a basic idea about how to tackle the challenge of paying back the new debt.
The draft policy guidelines say the Suga administration will adhere to the fiscal reform goal of achieving a combined national and local primary budget surplus–meaning that tax revenues are greater than government spending excluding debt interest payments–in fiscal 2025.
But they add that the administration will review the achievability of the goal by the end of the current fiscal year, which runs through March 2022. This is tantamount to postponing serious policy debate on how to cure the budget ills.
The aging of the nation’s population will progress further in the coming years with huge social and economic implications. The baby boomers will start turning 75 in fiscal 2022, forcing the government to increase spending further on public health and nursing care programs.
The government will be required to increase expenditures to reduce the nation’s carbon footprint and raise birthrates while making a sweeping review of its spending as well as revenue sources. Otherwise, the government’s debt will snowball out of control.
The economic impacts of the new coronavirus pandemic have been extremely unequal, overwhelmingly affecting the restaurant and hotel industries. Socially vulnerable groups, including non-regular workers and single-parent families, have been especially hit hard.
Rectifying economic inequities is a burning policy challenge.
In addition to securing new revenue sources to finance spending in the four priority policy areas, the administration also needs to embark on an overhaul of the government revenue structure to secure long-term fiscal sustainability.
The draft outline calls for “improving the redistribution system by expanding measures based on the ability-to-pay taxation principle” and “securing fiscal resources” through an approach modeled on the U.S. plan to ramp up taxation on businesses and well-to-do individuals.
These proposals represent a step forward from the policy of the Abe administration, which totally avoided debate on tax increases after the consumption tax rate hike to 10 percent.
Suga says his political philosophy requires him to explain to the public the need to increase its tax burden (due to the shrinking population) and win public support for the idea.
If so, the administration should quickly start debate on tax reform and present its tax reform blueprint to the voting public as a key policy issue in the upcoming Lower House election, which must be held by autumn.
–The Asahi Shimbun, June 11