TOKYO — Japan’s cabinet on Thursday approved new fiscal policies, growth strategies and regulatory reform plans, seeking to do all it can to avoid a slide back into deflation. But government efforts to spark growth over the three and a half years since the launch of Abenomics have not been sufficient to do the trick so far.
The new economic and fiscal management policy framework specifies that the consumption tax increase scheduled for April 2017 will be postponed until October 2019. It also maintains Tokyo’s goal of having both the central government and regional governments achieve primary surpluses by fiscal 2020.
The medium-term target — reducing the primary deficit to 1% of gross domestic product by fiscal 2018 — looks tougher to achieve. It will be reviewed as necessary if concerns arise, Economic and Fiscal Policy Minister Nobuteru Ishihara said after the cabinet meeting.
Tokyo still seeks to balance economic revitalization with fiscal health. The plans, aiming to create a “virtuous cycle of growth and distribution,” include an array of provisions to support households. Among the measures are scholarships, higher wages for child-care and nursing-care providers, and steps to spur consumption.
Labor reforms lacking
Japan’s work force has grown by 1 million over the past three years, thanks to broader employment of women and seniors. Unemployment has fallen and job openings are increasing. But less headway has been made on the labor reforms positioned by markets as central to the growth strategies.
A labor law revision that would allow wages to be based on performance rather than time worked has been shelved by the Diet for two years. This is an important measure that would give employers and employees more flexibility. Yet concern about the impact on the upper house election in July has stymied progress, a senior Liberal Democratic Party official said.
Another proposal would let judges order monetary compensation for wrongful dismissal, rather than reinstatement, which is their only option now. Critics argue that such a system would cause more workers to be let go against their will. Discussion of the proposal by an expert panel put together by the labor ministry has bogged down. Though this change would encourage labor to flow into higher-growth industries, even the time frame for implementation remains up in the air.
Barriers to entry
Prime Minister Shinzo Abe declared in January 2014 that “no vested interests will be immune to my drill.” In this light, his government’s regulatory reforms leave something to be desired.
For instance, the government has said only that it will “consider drastic reform” of raw milk distribution — which is all but monopolized by agricultural cooperatives. A recommendation in March that the government abolish the system was fiercely opposed by lawmakers with ties to agricultural interests. Though the government intends to adjust the system to leave the co-ops less dominant, its basis remains intact for now.
Strict rules still govern farmland ownership, making it tough for private-sector companies to enter the sector. Japan needs to open the door to new entrants to cope with the rapid graying of the farming population, but has been slow to lay the groundwork.
While the government is poised to lift a ban on letting travelers pay to stay in empty rooms in private homes, the plan shows deference to the hotel industry, which fears it will lose out. A ceiling will be imposed on the number of days per year that rooms can be available, which could prove prohibitive to newcomers if it is too low. Tokyo also continues to prohibit ride-sharing, another pillar of the sharing economy.
New blood needed
Reforms to improve competitiveness seem to be little more than talk. The growth strategies are full of numerical targets, such as building at least 50 advanced smart factories incorporating information technology by 2020 and putting self-driving cars on highways in the same time frame.
But despite calls for a productivity revolution via new technology, there is no clear path to that end. Even some in the industry ministry, the driving force behind the plan, lament that it is missing key pieces.
Japan has few entrepreneurs, and generous protections for small and midsize enterprises discourage shakeups. The effective corporate tax rate was cut below 30% this fiscal year to attract direct foreign investment — but this is still high compared with the rest of the world. Cutting red tape and creating a more welcoming environment for companies to do business will be crucial.
Tokyo aims to boost the fertility rate to 1.8 yet has done next to nothing to change budget allocations tilted heavily toward the elderly. Policies such as paying an additional 30,000 yen ($275) to low-income pension recipients make the government’s focus clear.
While holding down costs, asking seniors to pay more for social insurance, and other reforms may have been discussed, they have certainly not gone anywhere. For example, tightening the “macroeconomic slide” mechanism, under which pension payments rise slower than prices or wages, would make the pension system more sustainable. But the idea was shelved without debate in the last regular Diet session.
Opposition from the ruling coalition torpedoed a proposal to rework a system that limits monthly medical costs. A plan to impose a small additional fee on patients for doctor visits is still in limbo. The government is shying away from any proposals that might cause pain ahead of the July election.