Skepticism on Achieving Fiscal Soundness

The Fumio Kishida Cabinet made a decision to fix Basic Policy on Economic and Fiscal Management and Reform (Honebuto) 2024 on June 21. The annual plan on handling of economy and fiscal policy this year insisted on completely getting rid of deflation, making little difference from previous years. There still remains a skepticism on whether Kishida can be successful in achieving both growth and fiscal soundness.

Honebuto 2024 was made by Council on Economic and Fiscal Policy, which members included six ministers of Kishida Cabinet including Kishida himself, Governor of Bank of Japan and four business leaders. Based on request of the prime minister, the council members discuss economic and fiscal policy and submit their opinion on those issues every year.

 

The council basically supported the policies taken by Kishida Cabinet. “Economy of our country is facing one opportunity in a thousand to completely get rid of deflation and achieve growth-oriented economy,” said the Honebuto 2024. The phrase was exactly the same as what Kishida reiterated in the discussion of the Diet. It concluded that the important thing in management of economic and fiscal policy was moving Japanese economy to a new stage.

 

What does the “new stage” mean? Honebuto proposes Economic and Fiscal New-born Plan. The plan recommends two shifts. One is a shift from distribution of resources for urgent needs such as consumer price, wage or interest, to potential growth rate which indicates possible mid- and long-term economic growth of a country when it mobilizes all the necessary elements for production.

 

Another is achieving sustainable fiscal policy by reducing the balance of debt against GDP. It is indispensable for the government of Japan to deal with rising interest rate of governmental bonds, volatility of world economy, natural disaster or pandemic for securing confidence of the market on the fiscal policy.

 

The government will make efforts to go to the new stage by continuing economic and fiscal reform for six years between 2025 and 2030. The reform woill be raising productivity, more opportunity for job participation or raising birth rate. Each of those issues has nothing new, because Kishida administration has been tackling on them and has achieved no significant improvement. The plan is, after all, continuing what he has been doing.

 

The key is how to reduce the debt. The council maintained the goal of balancing fiscal revenue and spending by 2025. What would they do for it? They will continue their effort to reform the spending. Actual policy will be considered in the process of building budget every year. It is hard to understand for anyone what is new in the Kishida’s economic policies.

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