June 18, 2017 7:51 pm JST
Comment

Public a willing audience for Abe's shallow show of progress

Young and old eager to ignore growing cost of social programs

MIKIO SUGENO, Nikkei commentator

Former Prime Minister Junichiro Koizumi, left, and Prime Minister Shinzo Abe.

TOKYO -- The latest economic policy guidelines from Prime Minister Shinzo Abe's government are typically sunny, promising strong growth and new social benefits to boot. But any mention of the tax hikes or other potentially painful steps Japan needs to take to make good on those pledges has been kept out of sight, and increasingly out of mind.

In 2016's plan for economic and fiscal management, the government wrote that the consumption tax hike previously set for this past April would take place in October 2019. But in the guidelines for 2017 released Friday, the hike was not given even a passing reference.

Nobuteru Ishihara, economic and fiscal policy minister, has made it clear that "we cannot avoid the consumption tax hike," and that while the government is waiting "until 2019 because of the economy, we are absolutely going to raise" the tax.

Yet for all this insistence, omitting any such commitment from the document itself gives the government plenty of cover to stall again if it sees fit -- cover Abe's advisers and the public alike are happy to allow.

No rush?

The Council on Economic and Fiscal Policy, led by the prime minister, has been charged with sketching out the government's budget and policy plans for cabinet approval since the early 2000s, when former Prime Minister Junichiro Koizumi was in office. But while the process has remained the same since, the tone and content of these plans has shifted dramatically.

The last set of economic and fiscal policy guidelines under Koizumi, issued in 2006, paint a stark picture of Japan's demographic crisis. At that time, the country had 10 years until population decline and population aging would begin to take a real economic toll, the document said. "It is not acceptable for the current generation to leave its own debts to voiceless future generations for repayment," it stated.

The Koizumi government laid out plans to cut more than 11 trillion yen ($100 billion at today's rates) in expenditures over five years, and detailed what that would mean for social security, public investment and other areas. Kaoru Yosano, economic and fiscal policy minister at the time, called the document a will handed down to future administrations -- an admonishment to keep the country's fiscal house in order, shaving down spending while changing how the government receives revenue, including through future tax increases.

Abe's short-lived first government was the first to receive that charge. A decade later, after losing and regaining power, the prime minister still has work to do. The fiscal reforms begun under Koizumi are far from complete, set back by Japan's ongoing battle with deflation and the global economic crisis. But the sense of urgency present at the outset has disappeared.

The 2017 plan opens with a string of successes credited to Abe's "Abenomics" policies. The perennial pledge to create a virtuous cycle between economic growth and the distribution of wealth to residents makes an appearance next. New this year are plans to invest in human resources, for example by making early childhood education free and taking measures to lessen the cost of higher education. But exactly how the social security system will be revamped to accommodate increased payouts is left unresolved.

To be determined

For the Abe government to tout policy after head-turning policy creates an entrancing show of progress, played out in the pages of each year's policy plan. But at no point does that show touch on the tough realities Japan will have to face in the longer term.

Abenomics, with its signature combination of monetary policy, fiscal stimulus and strategies to stoke growth, has had four years to show concrete results. But Japan's real economic growth rate, in the mid-1% range, still falls short of the 2% on which the government has based its fiscal reform plans. And growth in consumer prices is stuck below 0.5%, despite the Bank of Japan's best efforts to reach sustained 2% inflation.

Arriving at a primary surplus in fiscal 2020 as the government intends will be nearly impossible. Even if growth were to reach 2% the fiscal year before, as the Cabinet Office's rosiest forecast has it, Japan would still need to find another 8 trillion yen to close the gap. The office's more conservative calculations assume gross domestic product growth of just 1.1%. And BOJ policy board members in April projected growth of a mere 0.7% for fiscal 2019.

Not all the signs are grim. The BOJ is working to hold long-term interest rates at zero. The policy has resulted in a brighter economic outlook and an unemployment rate near historic lows, though price increases have been slow to follow.

But the cheap financing that easy monetary policy brings has also weakened the government's fiscal resolve. Lowering Japan's debt-to-GDP ratio is now presented as a goal on a par with that of a primary surplus, giving the government license to keep spending, as long as growth continues and rates stay low.

Live in the now

All the while, the public has grown accustomed to the government stalling on tax hikes and dropping the ball on entitlement reform. Indeed, many are now happy to politely avert their eyes and stay blind to the consequences that lie ahead.

"A sense of deep despair regarding the future is taking hold among the younger generation," according to Kotaro Tsuru, a professor at Keio University. At a time of "overwhelming uncertainty, the tendency is to reject anything that would add to their load and settle for enjoying life in the present," he said. In an online survey Tsuru and his colleagues conducted several years ago, some 35% of respondents in their 20s supported expanding social security without hiking taxes -- the most of any age group. That inclination has only grown stronger, the team believes.

The young are refusing to accept the obligations handed to them, and in doing so threaten to tear the social security system down entirely

The time is long gone when the notion of a "silver democracy," in which the politically active elderly spurn tax hikes and benefit cuts and kick the financial consequences down to their descendants, was a topic of frequent discussion. Yet the situation Japan faces now is several degrees more dire: The young are refusing to accept the obligations handed to them, and in doing so threaten to tear the social security system down entirely.

Meanwhile, bureaucrats serving at the will of the prime minister have ceased to advocate for the painful but necessary policies the government has forsaken so far. Academics and business leaders are similarly aware that such campaigning is futile. And now that Abe has pegged revising Japan's constitution by fiscal 2020 as his government's top priority, economic policy is likely to concentrate on maintaining present prosperity, rather than embarking on the bold reforms that will make it sustainable into the future.

Japan's aging crisis will reach its zenith by 2025 as the last of the country's baby boomers celebrate 75. Every delayed reform complicates the problems younger generations will eventually need to resolve. As long as the Abe government is adding free education to the constitution or altering the war-renouncing Article 9, why not add provisions on fiscal discipline? Or, legislators could create an independent economic forecasting agency to steer government decisions.

The possibilities are endless. But time is not. Abe is now the third-longest-serving prime minister Japan has had since World War II. He must soon decide exactly what his government will pass on to the Japan of 10 or 20 years from now.

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