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Japan’s public finances deteriorated sharply in the course of responding to the COVID-19 pandemic. The government should face up to this reality and present to the people specific measures to restore fiscal soundness.
The government has approved the annual Basic Policy on Economic and Fiscal Management and Reform at a Cabinet meeting. The plans underscore the government’s intention to return its expenditure structure to one that fits normal times after its spending surged to fund COVID-19 measures.
In response to the pandemic, large-scale supplementary budgets have been formulated one after another since fiscal 2020. The outstanding balance of national debt, including government bonds, ballooned by more than ¥150 trillion over the past three years, reaching about ¥1.27 quadrillion at the end of fiscal 2022. That figure is more than double the nation’s gross domestic product.
It is evident that Japan’s fiscal situation, already the worst among developed countries, has become even more serious. The public’s anxiety about the future could heighten.
It is entirely natural that the scale of fiscal expenditures should be returned to pre-pandemic levels with the normalizing of economic activities.
As a supplementary budget is expected to be formulated this autumn, the ruling parties could intensify calls for massive government spending at that time, citing rising prices as a reason. The government must steadily implement the plans specified in the basic policy.
It is not sufficient to simply return public finances to previously normal levels. The government included a statement in the annual policy that it will “work on achieving the current fiscal consolidation target,” but for the second consecutive year, the policy made no specific mention of “fiscal 2025,” the target year that the government had earlier set to achieve a surplus in the combined primary balance of the central and local governments.
The government has vowed to maintain the target, but did not specify in the policy how it would be achieved. However, the policy does call for the progress of economic and fiscal reforms to be scrutinized in fiscal 2024. Specific reform measures also need to be discussed.
Looking at specific areas, the government has described measures to tackle the low birth rate as the centerpiece of “the most effective investment in the future,” but it reached no conclusion on how to fund the measures. Given that priority has been placed on these measures, securing funding resources is essential. If the situation remains unchanged, concerns cannot be dispelled that the government might end up resorting to still more borrowing without careful consideration.
In a section related to the “new form of capitalism” touted by Prime Minister Fumio Kishida, the policy called for facilitating structural wage increases by supporting the improvement of workers’ abilities through reskilling and shifting the labor force to growth areas.
As a measure to boost investment in Japan, the policy also proposed that the government facilitate the establishment of large-scale factories and research centers in fields such as semiconductors and biotechnology.
The aim is understandable, but the latest version of the basic policy seems to be simply a collection of measures and goals from each ministry and agency, so it is hard to know from the policy about how to achieve these goals. Basic economic and fiscal policies should be devised so as to convey to the public a picture of the nation’s future as envisioned by a prime minister.
