Osteoporotic Economic Policy

The Council of Economic and Fiscal Policy, a consultative committee headed by the Prime Minister, released the draft of basic plan for Japanese economy. Although it maintained the existing target of primary balance, an indicator of healthy fiscal policy about its dependency on debts, the council delivered no positive message to improve the situation of fiscal budget. It obviously because Prime Minister, Shinzo Abe, tried to maintain his freehand on economic policy for selling it in the coming election campaign. While the administration love to call the plan “staunch policy,” it actually suffers from osteoporosis.

The government of Japan has a target to reduce the annual deficit in fiscal balance of national and local budget by half in FY 2015, and eliminate it by FY 2020. The council decided to keep that target and to begin to reduce the amount of debt in 2021. It is, however, a common notion that as far as the government continues current fiscal policy, that goal must not be achieved, even if the consumption tax rate will be raised to 10%, from current 5%, in October 2015.

There was no indication in the draft how to increase tax revenue and to reduce governmental spending. It only said that the government would “soon make” the mid-term fiscal plan, which simply meant postponing that after the election of House of Councillors in July. In spite of some council member’s advice to raise corporate tax rate, the draft dismissed that proposal.

Spending reduction is far from sufficiency. Although the draft emphasized that the budget for social security should be reviewed “with no sanctuary,” it did not make the way to reduce medical cost clear. To buy votes in the election, it allowed more spending on building infrastructure, always causing maldistribution of wealth. Ignoring the false use of budget in every corner of Japan, LDP administration does not stop spending money for digging holes, carrying soils one place to another and building something up in inappropriate place, in the name of disaster relief.

This irresponsible attitude of the government may cause losing credibility on Japanese fiscal policy, raising the interest rate of long-term bonds. Leading economies in the world has been watching whether Japan was serious about improving its fiscal structure. Stock market and foreign exchange is showing steep ups and downs recently. No one knows what kind of trivial impact in the market may cause drastic selling out of Japanese bonds. Japan economy can be as lame as Greece, Italy or Spain.