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After landslide victory, Abe may ramp up spending to spur economic policies and social security

JIJI

Emboldened by the victory of his ruling coalition in Sunday’s general election, Prime Minister Shinzo Abe is likely to boost government spending to speed up his Abenomics deflation-fighting economic policy mix.

The government is expected to draw up a ¥2 trillion policy package by year-end to flesh out his project to “revolutionize” human resources development, officials said.

The project features his proposal for using more of the revenue from the planned consumption tax increase in October 2019 for free education as part of a larger effort to create a social security system that addresses the needs of all generations. Current programs disproportionately emphasize the elderly.

“We’ll implement it (the project) steadily as we included it in our promises,” Abe said on a television program, referring to his Liberal Democratic Party’s campaign pledges.

Appearing on another TV program, Abe said his government will carry out the consumption tax hike to 10 percent from 8 percent as planned unless Japan experiences an event similar in scale to the economic and financial crisis that followed the collapse of U.S. investment bank Lehman Brothers in 2008.

“We can never repay debt without economic growth,” he said. “We’ll work to restore fiscal health while helping economic growth and steadily making necessary investments.”

In late September, Abe called the latest election for the House of Representatives, saying he wanted to seek public judgment on his proposal for using about half of the ¥5 trillion expected to be generated from the consumption tax hike to improve social security programs, including free preschool education.

The change of use will cut about ¥1.5 trillion into the revenue originally set aside for government debt repayment.

Due to growing calls from the LDP-Komeito ruling coalition for increased public spending, the government will face the ever more difficult task of striking a balance with its commitment to reconstructing debt-laden public finances.

In addition to free preschool education, the LDP’s campaign pledges for the Lower House election included a study on government financial assistance to cover the costs of higher education until students are able to repay the aid with their incomes after graduation.

Komeito, the junior ruling coalition partner of the LDP, has proposed making private high schools effectively tuition-free. Abe has promised to consider the idea.

A government official said the expense for the revolution in human resources development could balloon to several trillion yen.

The Abe government pushed back its goal of achieving a primary budget surplus in fiscal 2020 but has not yet clarified a new target year. A surplus means that a government can finance its spending on social welfare, education and other policy measures, except for debt-serving costs, without issuing new debt.

After the Lower House election victory, Abe needs to carry out the LDP’s key campaign pledges, while at the same time going ahead with the consumption tax hike and reform of spending, including on social security, in order to put Japan’s fiscal house in order.

Toward the dual goals of promoting economic growth with more spending and achieving fiscal reconstruction, his policy-steering capability will be put to the test, analysts say.

Given the landslide victory of the ruling coalition, business circles welcomed the outcome and expressed hope that the government will put more effort into tackling economic issues.

“The business sector greatly welcomes” the election victory of the LDP and its Komeito ally, Sadayuki Sakakibara, chairman of the Japan Business Federation, or Keidanren, said in a statement.

The election results strengthened the foundation of the Abe government and will help it “carry out policies steadily and without interruption,” he said.

“We will fully cooperate with the Abe government in the implementation of its policies,” he said. As key policy goals, Sakakibara cited an exit from deflation, economic revitalization, an improvement in the social security system, fiscal consolidation, energy issues and national security.

Sakakibara stressed the need for the Abe government to “exert powerful political leadership in solving important policy issues at home and abroad.”

Yoshimitsu Kobayashi, chairman of the Japan Association of Corporate Executives, or Keizai Doyukai, said, “I hope deliberations on constitutional amendments will be held carefully in a way visible to the public as a revision to the national charter is now closer to reality.”

In the closely watched general election, forces in favor of constitutional revisions are believed to have won a two-thirds majority in the Lower House.

Any proposal to revise the supreme law needs to be approved by at least two-thirds of members in both chambers of the Diet before it is put to a national referendum. More than two-thirds of the members in the House of Councilors, the upper chamber, are positive about revisions.

Akio Mimura, chairman of the Japan Chamber of Commerce and Industry, said he hopes that the government will “strive to help overcome labor shortages and improve productivity, and also build a strong economic foundation by carrying out structural reforms.”