The government has approved an economic and fiscal reform plan for 2007 that will serve as the basis for compiling the fiscal 2008 budget. It encompasses a variety of policy measures that Prime Minister Shinzo Abe’s administration thinks are necessary to ensure both economic growth and financial reconstruction. But the plan lacks focus. A long-term strategy is needed to tackle big issues such as restoring financial health to the central as well as local governments, narrowing the economic gaps between urban and rural areas and stabilizing the social welfare system, which is suffering from the graying of the nation’s population.

Apparently conscious of attracting votes in next month’s Upper House election, the government included a wide range of items in the reform plan. For example, the plan says measures will be taken to ensure that people get all the pension amounts they are entitled to. But it does not mention the need to overhaul the nation’s pension system. In 2004 the government decided to raise the percentage of national tax money dedicated to the basic portion of pensions to 50 percent in fiscal 2009. Consumption tax revenues are generally regarded as an appropriate pension funding source. Yet the plan calls only for discussing tax reform this fall — after the Upper House election.

The 2006 plan adopted by then Prime Minister Junichiro Koizumi’s administration called for spending cuts of 11.4 trillion yen to 14.3 trillion yen in five years and an annual reduction of 1 to 3 percent in public works spending. The Abe Cabinet’s plan does not set such numerical goals. It only says that maximum efforts will be made to cut spending in accordance with the 2006 plan. It also says that, in principle, funds for new spending must be balanced with cuts in other spending.

Given the overall tone of the plan, lawmakers of the ruling parties are likely to press the government to create special budgetary allowances. The absence of numerical spending-cut goals could lead to loss of financial discipline.

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