Japan’s current run of economic growth provides a now-or-never opportunity to tackle the nation’s debt and forge ahead with plans to increase the sales tax, said Yoshimitsu Kobayashi, chairman of the Japan Association of Corporate Executives (Keizai Doyukai).
The ballooning debt shows no signs of easing, Kobayashi, 70, said in an interview on Tuesday in Tokyo. He previously advised the government, and his business lobby is an important voice in policy debates. “You’ve got to do it during good times like this, otherwise, you never will,” he said. “We have reached a point where we must consider how to make Japan’s fiscal situation sustainable.”
When public support for Prime Minister Shinzo Abe plunged earlier this year, some lawmakers started talking about canceling the tax hike, he said. That, and the adoption of an additional measure to assess the nation’s fiscal health, are signs that the government’s resolve to rein in debt is wavering, said Kobayashi, who is also chairman of Mitsubishi Chemical Holdings Corp.
The government in June added a debt-to-GDP ratio as a gauge for assessing the country’s fiscal position. Previously, it had just focused bringing the primary balance into surplus in fiscal 2020. By the government’s own estimates, this primary balance goal is out of reach.
“Adding another criteria implies that the government wants to say it’s OK as long as one of them is good when the other one fails. That’s logically obvious,” Kobayashi said.
A drop in the debt-to-GDP ratio is easier to achieve as long as the Bank of Japan keeps interest rates low with its record monetary easing, according to Kobayashi, who served on the government’s main policy advisory council when the sales tax was raised to current 8 percent in April 2014. The primary balance surplus should be the focus because achieving this guarantees the debt-to-GDP ratio will also fall, he said.
“It’s like the government is telling the BOJ not to exit” from monetary stimulus, he said.
The process that Kobayashi sees in place now is one of continued stimulus from the central bank, which keeps borrowing costs low and supports economic growth. That could cause the debt-to-GDP ratio to fall even as the actual amount of debt continues to rise.
Policymakers must stick to a planned 10 percent hike in the sales tax in October 2019, having delayed it twice, he said. The government needs to have a frank dialogue with voters about what to do to address swelling social service costs, rather than focusing on short-term political gains, Kobayashi said.
“In households, we limit how much we spend based on how much money we get, which is normal, but we are not doing so as a nation,” he said. “When it comes to public money, everyone wants it. Politicians focus on spending in order to win elections. That’s the essence of the problem.”
Kobayashi, a father of three and a grandfather of five, likened the short-sighted approach to “waging a war against younger generations.”
“As we do what we want, we are increasing the burden on younger people,” he said.
Companies whose earnings have grown thanks to a weaker yen should do more to spread the benefits of recent economic growth to workers and help spending, Kobayashi added.
“Companies should raise wages when they can,” he said. “There’s more room to make efforts on that end.”