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Can a virtuous economic cycle be promoted amid mounting challenges, such as dealing with an infectious disease, a low birthrate and an aging population? The government should swiftly work out concrete measures for that purpose, while thoroughly explaining to the public the direction it intends to aim.
A council set up by the government to realize a “new form of capitalism” advocated by Prime Minister Fumio Kishida has compiled emergency proposals on priority measures, such as promoting digitization and expanding tax incentives for companies that raise wages.
According to the government, the new form of capitalism aims at a “virtuous cycle of growth and distribution” by strengthening investment in “human capital” from school education to job training.
Recognizing that in the past corporations have attached importance to shareholders and sought short-term profits, resulting in stagnant incomes among the middle class and widening economic disparities, the new form of capitalism is intended to enhance corporate productivity through the government’s growth strategy and to redistribute the fruits of that growth through higher wages.
However, it is hard to say that the purpose and content of the new form of capitalism have yet been fully conveyed to the public, as promoting the slogan itself has been the main initial focus. Concrete measures to realize the emergency proposals will be critically examined, but most of the proposals are based on a rehash of existing measures.
The tax incentives for companies that raise wages will be designed to shore up the overall level of wages in a system that focuses on raising the wages of many individual employees, not just increasing total spending on personnel.
However, a look at tax incentives that have already been implemented shows that they have not produced tangible results to promote wage hikes. To actually encourage wage hikes, which are a long-term burden once the wages are raised, measures to boost corporate productivity may be more important.
The growth strategy, such as the expansion of research and development in advanced science and technology and renewable energy, also lacks freshness.
Based on the emergency proposals, the government intends to compile a package of economic measures worth tens of trillions of yen on Nov. 19. But here too there are many measures whose purposes are unclear.
The centerpiece of the economic measures is support for families with children, in which the government plans to provide benefits equivalent to ¥100,000 per child aged 18 or younger.
In consideration of criticism that this is pork-barrel spending, the government plans to exclude households with annual incomes of more than ¥9.6 million. However, as the benefits will still be distributed to about 90% of households with children aged 18 or younger nationwide, this is nothing but pork-barrel spending. Many experts point out that such cash handouts often go directly into savings and have little effect in stimulating consumption.
If the government is really going to support families who are in need due to the novel coronavirus pandemic, it needs to practice more precise targeting. It said it intends to offer cash handouts to needy households in one way and cash handouts to students in another way. The big picture of the support measures is difficult to understand.
In addition to the council to realize the new form of capitalism, the government has newly established other councils, including one to support regional vitalization by promoting digitization in rural areas nationwide, such as by putting in place high-speed communications networks and other infrastructure, and an ad hoc administrative research council to facilitate digital and regulatory reforms. The disorganized nature of the councils has not changed from that seen in previous administrations. It is hoped that the government will organize the aims and objectives of these measures and then disseminate them to the public.
— The original Japanese article appeared in The Yomiuri Shimbun on Nov. 12, 2021.
