Wealth distribution toned down in government policy drafts

By Tomoki Okamoto and Moe Tajima / Yomiuri Shimbun Staff Writers

15:19 JST, June 1, 2022

The wealth distribution that Prime Minister Fumio Kishida talked up at the beginning of his administration has been left in the shade in drafts of economic and fiscal reform policy and the action plan on Kishida’s signature “new capitalism” policy, which emphasize aggressive investment to solve issues such as global warming and widening inequality.

“New capitalism will be realized by using solutions to social issues, utilizing investment in people, digital technology, and green technology as engines of economic growth,” states the draft of the this year’s Basic Policy on Economic and Fiscal Management and Reform, in which investments in efforts to tackle challenges are positioned as opportunities for economic growth.

The new capitalism action plan emphasizes investment in people, including skill development and job search support for approximately one million people, and the formulation of a plan to double assets and income by redirecting personal financial assets, which are heavily weighted toward savings, into investment.

Behind such moves is a perception that companies have accumulated internal reserves without putting enough money into capital investment or employee wages, which has led to the prolonged stagnation of the economy.

In May, Kishida delivered a speech in London’s financial district and emphasized the need for policies to increase private-sector investment, saying, “We will move forward to overcome underinvestment in areas that generate added value.”

Japan Business Federation (Keidanren) Chairman Masakazu Tokura welcomed the move. The government has “put forth a clear message that the public and private sectors will come together to rebuild Japan’s economy and achieve a virtuous cycle of growth and distribution,” said Tokura, who is a member of the Council on Economic and Fiscal Policy and the council convened to realize Kishida’s new capitalism policy.

In contrast, wealth distribution policies have become less prominent.

During the Liberal Democratic Party presidential election last September, Kishida proposed strengthening taxation on profits from the sale of stocks and other financial assets. However, the idea was quickly abandoned amid plunging stock prices and criticism within the LDP. In the end, it was not included in the latest drafts.

The emergency proposal created by the new capitalism council last November included sections on wealth distribution and growth, but the latest action plan did not make a clear distinction between the two. “It is difficult to divide individual policies into ‘growth’ and ‘wealth distribution,’ so we decided to organize them by theme,” explained a senior Cabinet Secretariat official who was involved in the formulation of the plan.

The government also seems to be trying to dispel its image as an administration that “does not respect the market.” A senior official said, “The government may be correcting its course because its stance of raising taxes on large corporations and distributing them to residents may have resembled communism in the eyes of the public.”

The government and ruling parties hope to win public support by reflecting the content of the economic and fiscal reform policy and the action plan in their campaign pledges for the upper house election this summer.

However, the action plan contains many abstract descriptions. Even though it includes the establishment of the so-called GX economic transition bond, a government bond to support corporate capital investment to realize a decarbonized society, specific financial resources and other details have not been determined.

Since assuming office, the prime minister has been asked to come up with a clear vision of new capitalism, but even in the latest drafts, it is difficult to say that he has clarified his signature policy. Some have pointed out that Kishida’s emphasis on wealth distribution has been weakened, which makes it difficult to differentiate Kishida from former prime ministers Shinzo Abe and Yoshihide Suga, who focused on economic growth.

“Emphasis on growth strategies is commendable, but investments need to be made in areas where they are needed,” said Takahide Kiuchi, an executive economist at Nomura Research Institute Ltd. “If government debt increases due to excessive spending, there is concern that it will adversely affect future growth.”