The Cabinet of Prime Minister Shinzo Abe on Tuesday adopted a set of economic reform strategies to boost mid- to long-term economic growth, including attracting more foreign investors to prop up stock prices.
The Japan Revitalization Strategy — the “third arrow” of “Abenomics” — includes a pledge to cut corporate tax, welcome more foreign workers, help working women and shake up the portfolio of the Government Pension Investment Fund, the world’s largest.
Analysts have generally welcomed dozens of deregulations and subsidies included in Abe’s growth strategy, in particular the goals of reducing the corporate tax rate and changing GPIF policy to encourage more domestic share purchases.
But so far the market’s reaction has been lukewarm. Most of the measures had already been reported on and factored in by investors.
In addition, it’s still not clear how the plans will be implemented, including how to solve the paradox of financing the reforms while staving off a potential fiscal crisis.
Nobuhiko Kuramochi, head of the investment information department of Mizuho Securities Co., praised the growth strategy ahead of its formal adoption.
“It shows (Abe’s administration) is, overall, pro-business. The whole concept is good,” Kuramochi said.
“But most of the basic measures have already been reported. There is little sense of surprise,” he added.
The latest Japan Revitalization Strategy is a revised version of one first published last June.
Investors and the public at large have focused intently on the third arrow, aware that the first and second — namely the ultra-aggressive monetary easing by the Bank of Japan and huge government spending on public works — are unsustainable over the mid- to long term.
Senior officials at the prime minister’s office have repeatedly stressed the importance of attracting foreign investors. It’s imperative that the government, they believe, hammer out measures to convince those investors that Japan can keep growing despite its rapidly shrinking population.
The new strategy also calls for bringing more foreign housekeepers into special economic zones — most likely including the Kansai region — to help working women juggle work and home life. Currently, only foreign diplomats are allowed to employ foreign maids.
To ease the current labor shortage in the construction and shipbuilding industries, Tokyo will also invite in more foreign workers ahead of the 2020 Tokyo Olympics.
Visa restrictions for some professionals and entrepreneurs will also be eased, according to the 124-page paper.
But Kuramochi of Mizuho Securities said the government has yet to explain how it can sustain the loss of revenue from cutting the 35 percent corporate tax rate. Abe has pledged to lower the rate to below 30 percent “over several years.”
The GPIF will announce details of a new portfolio policy around September.
Pointing to that policy change, many critics complain Abe is too focused on quick fixes to keep market players happy and temporarily boost stock prices.
“It’s been made clear (the Cabinet) will promote deregulation so that businesses can more easily operate. But it’s not clear how speedily such plans will be carried out,” Kuramochi said.
Critics also say Abe hasn’t done enough to remove some “rock hard” regulations and radically restructure the troubled economy.
For example, in drafting the growth strategy, a subcommittee on population issues proposed that the government should “boldly shift” much of the social security budget from the elderly to the younger generations, and double public financial assistance for households with children to stem the population decline.
Neither proposal was included in the final version of the strategy.
What did make it, though, was a call for more foreign unskilled workers to help industries suffering from labor shortages. However, there was no mention of offering such workers a path to permanent residency to counter the long-term problem of population decline.
“Many other countries have undergone difficult experiences (concerning immigrants). I believe we should be careful about accepting immigrants,” Abe said.
He also said he believes Japan should accept “competent (foreign) talents” to reinvigorate the Japanese economy.
Gist of growth strategy, fiscal policy
The growth strategy
- Aims to reform the tightly regulated employment, agriculture and health care sectors.
- Promises to reduce the 35 percent corporate income tax rate to below 30 percent within a few years of fiscal 2015.
- Urges the Government Pension Investment Fund to revise its investment portfolio, which is currently dominated by domestic bonds.
- Pledges to change rules on maids and nursing carers to enable more foreigners to enter the sector.
- Promises to promote a merit-based pay system.
- Vows to expand the system of medical treatment combining insured and uninsured services.
- Aims to ease restrictions on ownership of agricultural corporations by private companies.
- Pledges to boost farm exports to ¥5 trillion by 2030.
- The economic-fiscal policy blueprint
- Will boost spending to reverse the fall in population, aiming at maintaining 100 million people in 50 years.
- Will turn the primary balance into a surplus by fiscal 2020.