In the "Okuda Vision (Japan 2025)" report released in January 2003, Keidanren used a simulation to present the medium to longer-term prospects for Japan's fiscal and social security systems. We made it clear that the measures which would be needed to maintain the sustainability of national and local government finances -- including social security programs -- would involve cuts in public spending and a hike in consumption tax to the upper half of the 10 to 20 percent range.
During the roughly 1 1/2-year period that has since elapsed, a Cabinet decision was made requiring the government to cap government expenditures as a proportion of GDP and to aim for a surplus in the primary fiscal balance by the early 2010s. The Diet also enacted pension reform legislation earlier this year. In light of these developments, Keidanren has updated the simulation used for the report, and found, in short, that this series of reforms is still not sufficient to sustain our fiscal and social security systems and that further spending cuts and tax increases are necessary.
In revising the simulation, we also updated the macro-econometric model we compiled for the Okuda Vision. This model forecasts Japan's potential growth based on estimates of the nation's workforce, total factor productivity and other elements. It also takes into account the mutual dependency between macroeconomic performance and the fiscal and social security systems.