Govt draft on fiscal, economic policy lacks resolve to attain fiscal health

The Yomiuri ShimbunGiven the swelling of social security costs as the population ages, the nation’s fiscal balance is expected to deteriorate further. Effective measures to cut spending, and a consumption tax increase, should be carried out smoothly to pursue a steady road to fiscal health.

The government has compiled the first draft of the Basic Policy on Economic and Fiscal Management and Reform, known as the “big-boned policy.”

The draft basic plan expresses a strong sense of crisis regarding the aging of the population, warning that “the population of people aged 50 or older will exceed 50 percent of the total population in 2024 for the first time ever in the nation’s history.”

To deal with the decline in the working-age population caused by the falling birthrate and aging population, the draft plan calls for expanding the acceptance of foreign workers.

To help women participate actively in society, the government plans to provide seamless support for them in relation to pregnancy, childbirth and child-rearing. The draft includes a plan to move forward the full implementation of free preschool education and childcare from April 2020 to October 2019.

It is laudable that the draft puts forth diverse measures to tackle the aging population, a matter that needs to be dealt with urgently.

The problem is that the draft lacks the resolve to come to grips with realizing fiscal soundness, a goal that is indispensable to overcoming the graying of society.

The draft plan has set a goal of achieving a surplus in the primary balance by fiscal 2025, to finance policy expenses without relying on borrowings. The government had tried to turn the primary balance into the black in fiscal 2020, but as this goal is far from being achieved, the deadline has been postponed.

Smooth path to tax hike

Understandably, it will not be easy to realize a primary balance surplus, even in fiscal 2025. According to the Cabinet Office’s estimates, the primary balance will see a deficit of ¥3.8 trillion to ¥9.6 trillion in fiscal 2025 if no effort is made to improve the balance.

To realize the goal, not only a tax revenue increase resulting from economic growth, but also a spending cut, is indispensable. Nevertheless, the draft plan does not present concrete measures to curb expenditures.

A matter of special concern is the measures envisioned by the draft plan to cope with social security costs.

The government achieved its goal of reining in the year-on-year increase of social security expenses to ¥500 billion over three years from fiscal 2016 through fiscal 2018.

The government studied setting a numerical target for fiscal 2019-21, but has decided to postpone it due to strong opposition from within the ruling coalition parties with an eye on the House of Councillors election set for next year.

Without setting the ceiling, it is doubtful whether the government will be able to prevent a budget increase by warding off the ruling parties’ pressure to expand spending.

The draft plan presents the idea of incorporating economic measures into the fiscal 2019 and fiscal 2020 budgets.

These measures are intended to deal with the business downturn that is anticipated to occur in the wake of the consumption tax rate being raised to 10 percent in October 2019. A slump like the one seen in the aftermath of the consumption tax being raised to 8 percent in April 2014 should be prevented from happening again.

Pork-barreling budgetary appropriations on the pretext of measures to deal with the planned consumption tax hike should be severely restrained. While maintaining fiscal discipline, efforts should be concentrated on improving the economic environment so that the tax increase can be implemented without difficulty.

(From The Yomiuri Shimbun, June 6, 2018)Speech


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