Review Abenomics: The Japan News

Japanese Prime Minister Shinzo Abe at a press conference in Tokyo, on June 1, 2016.
Japanese Prime Minister Shinzo Abe at a press conference in Tokyo, on June 1, 2016. PHOTO: AFP

In its editorial on June 2, the paper urges the government to focus on stimulating private sector consumption and investment, now that the consumption tax hike has been delayed.

Now that Prime Minister Shinzo Abe has decided to postpone a planned consumption tax hike for 2½ years, his administration must steadily work to pull the nation out of deflation and reinforce the economy's growth potential.

Mr Abe must also show what impact the delaying of the tax hike may have on relevant policy measures, and how he will secure substitute fiscal resources.

At a press conference, Mr Abe officially announced his decision to postpone an increase in the consumption tax rate to 10 per cent, which was scheduled for April 2017, until October 2019.

As to the reasons for the postponement, Mr Abe said the tax hike "may stall domestic demand" at a time when there are downside risks in the world economy.

In November 2014, when he previously announced his decision to postpone the tax hike, he explicitly ruled out the possibility of postponing it again.

Regarding this point, Mr Abe said "I sincerely accept criticism that my latest decision runs counter to the official pledge I made previously."

He also indicated he would seek the judgment of the people, by making the issue of whether to accelerate or turn back from his Abenomics economic policy package the biggest point of contention in the House of Councillors election.

Abenomics has brought about such tangible effects as improving the employment situation, but problems remain, including sluggish consumption.

To surely fulfill the challenge of getting the nation out of deflation, the postponement of the consumption tax hike is an inevitable choice.

Mr Abe said the government would work out "comprehensive and bold economic measures" this autumn, and emphasised that he would "rev up the Abenomics' engine to the maximum."

The vital thing is to thoroughly examine what the present Abenomics policies have lacked and how they should be strengthened.

Increases in corporate profit should prompt companies to raise wages, which should make households more affluent, pushing up consumption.

But the gears of such a virtuous economic cycle have failed to mesh, as both individuals and companies are on the defensive, increasing their savings.

What is needed is a prescription for stimulating private-sector consumption and investment, rather than one for temporarily revving up the engine of the economy through such conventional measures as public works spending.

Of the ¥4.4 trillion (S$50 billion) increase in tax revenues expected through increasing the consumption tax rate to 10 per cent, about ¥1.3 trillion was to be used for measures to expand social security programmes.

Included in the programs are many important measures such as a reduction in the premium for nursing care insurance to be paid by low-income people and the creation of enough child care facilities to accept 500,000 more children.

In the official pledges for the upper house election, concrete steps should be clearly stated as to how to prioritize policy measures and how to secure stable fiscal sources needed to implement such measures.

Japan's long-term debt is the worst among industrialised countries, exceeding twice the size of the nation's gross domestic product.

Mr Abe made clear that he will maintain the target of turning the primary balance into the black in fiscal 2020.

But a deficit of ¥6.5 trillion would remain even if the tax hike were implemented on schedule.

With the postponement, it has become ever more uncertain that the target can be achieved.

Integrated reform of the tax and social security systems, which is intended to support the nation's social security system with the consumption tax revenues as fiscal resources, must be maintained.

To raise the consumption tax rate while alleviating the possible impact on the overall economy, the introduction of a reduced tax rate for certain goods is essential.

Concrete preparations for this must be made.

* The Japan News is a member of The Straits Times media partner Asia News Network, an alliance of 21 newspapers.