Divisive Growth Policy

“Work hard,” to employees, and “Be profitable,” to employers. Those were messages from Shinzo Abe administration. The government made a draft of Basic Plan for Economy Fiscal Policy and Reform, or “Thick Bone Plan,” which included deep cut in corporate income tax, eliminating payment for overtime work and maintenance of population. Although it may be welcomed by big companies and foreign corporation, the plan can introduce vertical division in Japanese society.

Abe announced on Friday that he would reduce actual corporate tax rate from current 35% to somewhere below 30% within a few years. His idea was reflected in the draft. By reducing corporate tax rate, the administration expected positive investment from overseas. The detailed plan for compensative revenue resource will be discussed by the end of this year, leaving the most difficult issue worried by Ministry of Finance.

The plan projected reforming wage system from time-based to result-based. Payment for workers in Japan has some regulation, which requires most employers to restraint weekly labor within forty hours and recommends them to finish daily labor within eight hours. Employers need to pay for additional labor based on time accumulation. The plan will urge employers to eliminate additional labor and to pay for achievement their workers make. With this new system, the administration expects setting favorable labor environment for foreign investors.

Population was also considered in the perspectives of economic growth. The draft set a goal to keep 100 million people in Japan a half century later. If birth rate remains current level, which is 1.43 kids for a woman in her lifetime, population of Japan in 2060 will be around 80 million, two thirds of current population. To raise birth late to 2.07 by 2030, the administration promotes more supports to families with little children and increasing nursery facilities for working mothers.

Response in foreign country was not bad. Wall Street Journal praised the draft as good in its editorial, saying “It’s a lesson that ought to be heard in Washington, where too many on the right and left to think high corporate tax rates are good politics.” Incentives to foreign investors should not be accused in overseas, anyway.

The point is whether the policy really works for Japanese economy. While big corporation enjoys preferable business environment, consumption has not recovered from long-time deflation. Real wage, considering high commodity price brought by consumption tax hike in April, declined by 3.1% from a year ago. One-sided stimulus policy still in a jeopardy of slump stemmed from imbalance in wealth distribution.