Prime Minister Fumio Kishida has clearly identified the principal threats to the nation’s security and prosperity.
In foreign affairs, it is an increasingly dangerous security environment, in particular China’s increasingly aggressive military posture and capabilities and North Korea’s belligerence. On the domestic side of the ledger, it is the demographic pressure created by a falling birthrate and an aging and shrinking population. His Cabinet has developed policies to address sets of challenges and is implementing them.
Unfortunately, the clarity of those assessments has not been matched by a similar vision when it comes to funding. The government has refrained from explaining how it is going to finance the changes needed to boost the country’s birthrate and its national defense. In both cases, the fear of backlash from the public has yielded caution, calls for flexibility and, most worrying, a readiness to delay the hard choices that are required. True leadership rests on a matching of intention with capabilities; a government cannot promise solutions when it does not have the means — the money — to implement them.
Kishida has called Japan’s plummeting birthrate “an existential crisis,” adding that depopulation is “an imminent problem that cannot be shelved and affects our nation’s overall social and economic activities.” Following up an announcement earlier this year that he would take “unprecedented steps,” his Cabinet this week approved a package of policies to address the issue.
Those efforts include financial support for parents, including those who take parental leave for young children, more child care and macroeconomic policies designed to boost the income of young people who fear that they won’t have the means to raise children. To do that, Kishida promised to raise the budget for child care policies by about ¥3.5 trillion annually over the next three years. In February, he said expected increases would constitute a virtual doubling in spending, pushing related budget expenditures to 4% of gross domestic product and raising spending on child care policies to an amount the government says is “on par with Sweden.”
At the same time, the government has increased the defense budget to ¥6.8 trillion for this fiscal year, an increase of 26% from last year’s ¥5.4 trillion, with plans for defense spending to eventually double to reach 2% of GDP. The increased budget reflects the acquisition of new weapon systems for counterstrike capabilities and modernization of aircraft, ships and long-range missiles. It will pay for stockpiles of ammunition and parts, as well as the infrastructure needed to sustain fighting capability. Additional funds will go to build capabilities in unmanned systems, cyberspace and outer space, the electromagnetic spectrum and artificial intelligence.
In general, the Japanese public supports those measures. It recognizes the financial constraints that families with young children face and the hard choices that result. Opinion polls show increasing concern with the deteriorating security environment, the threats posed by hostile neighbors and the need for Japan to do more to promote national defense as well as contribute to regional security. In a May Kyodo poll, 89% of respondents declared themselves “extremely concerned” or “somewhat concerned” about the possibility of Chinese military action to attempt to unify Taiwan with the mainland.
At the same time, however, the public is reluctant to pay for those measures. In a typical survey taken earlier this year, more than two-thirds of Japanese favored doubling the child care budget, but more than half didn’t want to raise taxes to do that. In another poll, 80% of respondents said that they opposed a tax hike to finance the defense buildup.
Faced with this resistance, and Kishida’s statement earlier this year that family-related social expenditures should be as high a priority as defense spending, the government has shelved plans to increase taxes to pay for either category of spending. Instead, the prime minister said this week that the government will conduct a thorough analysis of spending to find needed funds. And while it will come up with a road map to identify revenues, it will not impose additional burdens on taxpayers. Kishida said that he would “thoroughly cut expenditures” in other fields to ensure the necessary budget for child care.
That won’t do the trick. Efforts to devote more funds to parents and children will conflict with the need to provide resources to the expanding population of older persons. And in an important distinction, those older citizens vote; children do not. We certainly hope that the government won’t insult our intelligence with claims to be able to find sufficient funds from the elimination of waste. That problem exists but it is never enough to pay for important big-ticket items.
A continuing reluctance to raise taxes to pay for new policies means that the government must borrow money — issue more bonds — to pay for the new expenditures. This is the traditional way to avoid upsetting voters — even though they are eventually penalized by the interest payments that result.
At the close of the last fiscal year (March 31, 2023), the national debt had reached a record high of ¥1.27 quadrillion.
This is approximately $9.2 trillion, or 263% of GDP, and is the highest of any developed nation. The situation is unsustainable.
Japanese prime ministers have long promised to balance the budget. Shinzo Abe pledged to accomplish this by 2020. He failed. When COVID-19 hit, the government had aimed to achieve a primary budget surplus — which excludes new bond sales and debt servicing costs — by the end of the fiscal year beginning in April 2025. COVID-19 upended previous targets as the coronavirus-triggered slowdowns, simultaneously demanded government stimulus, all the while revenue shrank. Kishida’s budgets with all these new expenditures push the prospect of any balance further into the future.
The draft of its midyear economic policy, released earlier this month, reportedly revealed that the government — for the second consecutive year — would not provide a time frame for balancing the primary budget. Most observers see this as proof that it is unwilling to tie its hands as long as there is the possibility of an election on the horizon. Economic hardship, either through increased taxes or reduced services, is no platform for a successful election campaign.
That explains Finance Minister Shunichi Suzuki’s comment that Japan will flexibly decide when to begin raising taxes to cover the increase in defense spending. That date has been steadily pushed back, with recent reports indicating that might occur in 2025, the year the next general election must be held. Electoral considerations suggest that date will pass too.
As good conservatives, the LDP remains committed to balancing the budget. Accomplishing that, increasing defense spending and child care support and ensuring that the elderly are taken care of requires hard choices. Voters must be responsible as well.
The government needs to do more to explain those realities to the public, reject easy, empty promises and show that it is worthy of the trust and responsibilities that it has been given.
The Japan Times Editorial Board
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