When Fumio Kishida was campaigning ahead of the ruling Liberal Democratic Party’s presidential election last month, he vowed to draft a large stimulus package and to redistribute wealth, all while hinting he would push back the government’s primary balance schedule and avoid a consumption tax hike for the next decade.
With Kishida taking over as prime minister, Finance Minister Shunichi Suzuki will be forced to balance Kishida’s spending plans with the nation’s poor fiscal health.
“To ensure market confidence, maintain the sustainability of social security and financial resources to counter emergencies like the ongoing pandemic, it’s necessary to pave the way for fiscal reconstruction,” Suzuki, Japan’s first new finance chief in almost nine years, said in an interview with media outlets on Thursday.
The country’s fiscal health is already the worst among developed nations, with its public debt exceeding 200% of its gross domestic product. The financial toll of the country’s coronavirus response has added to that burden. The Bank of Japan’s low-rate policy has lowered the cost for the government to finance debts, but some experts have warned that this has undermined fiscal discipline.
Yet Suzuki is expected to face pressure to spend more.
For example, Kishida has said the government will draft a stimulus package worth “tens of trillions of yen” as soon as possible.
Suzuki said the cost of the extra budget is still uncertain, as specific policies will be pitched by each ministry from now on, adding that his ministry hopes that an extra budget bill to finance the stimulus package will clear the Diet by the end of the year.
More importantly, Kishida still needs to win the Oct. 31 Lower House election to stay in power, and an Upper House election looms next summer. Given those two key polls, the LDP and its junior coalition partner, Komeito, are likely looking to woo voters with popular policies that involve heavy spending.
The LDP has yet to come up with a campaign platform for the Lower House election. But the fact that Kishida appointed Sanae Takaichi — a contender in the LDP race who advocated for bold government investments — as the party’s policy chief may be an indication that the new prime minister is prepared to spend.
Komeito, on the other hand, on Thursday announced its platform, which includes distributing ¥100,000 to all people age 18 or under as a means of softening the economic impact of the pandemic.
Kishida also aims to focus more on redistributing wealth to mitigate disparities between the rich and poor. He plans to raise the wages of those in the public sector, such as nurses and nursing-care workers, while boosting financial support for families with children.
These policies are likely to put more strain on Japan’s finances.
While the prime minister has acknowledged the importance of fiscal reconstruction, Kishida also stressed that resuscitating the economy is his priority.
To do that, Kishida has said Japan will push back its fiscal reconstruction target of achieving a primary balance surplus by fiscal 2025, if necessary. Bringing the primary balance into the black means the government can fully cover its expenditures excluding debt-servicing costs with its own tax revenues.
Japan’s policy for now is to strive to keep this promise, but the government will examine the impact of the coronavirus on its finances this fiscal year and then review the target again, Suzuki said.
During the interview, Suzuki stressed the importance of preparing measures to improve fiscal health but was short on specifics of what he will do regarding fiscal consolidation.
Normally, raising the consumption tax would be considered a viable option, but the prime minister has already taken that tool away by saying he won’t raise it for about 10 years.
Suzuki said the consumption tax is a stable source of revenue to help mitigate Japan’s ballooning social security costs. But he refrained from elaborating on any need for a sales tax hike in the future, only saying that the Finance Ministry is not considering any changes for now.
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