Japan's Finance Minister Taro Aso vowed Friday to restore fiscal health to the nation's economy by raising government revenues and creating a cycle of growth centered on consumer tax hikes, employment growth opportunities and a more sustainable social security system.
Aso told parliament as the 150-day Diet session kicked off Friday, that it was necessary for the government to raise the consumption tax in Japan to underpin the nation's burgeoning social security costs and take the necessary measures to ensure the hike in April from 5-8 percent doesn't overly weigh on an economy on the brink of escaping two decades of deflationary pressure.
Aso also highlighted the need for corporations here to augment their earnings, so as to bolster the job market and spur further corporate investments and consumer spending.
The Cabinet of Prime Minister Shinzo Abe on Friday also submitted to the Diet a supplementary budget for this fiscal year and a general account budget for this fiscal year totaling 100 trillion yen (1.2 trillion U.S. dollars), to cover the expected economic fallout from April's tax hike and provide funds as preparation for Tokyo to host the 2020 Olympics swing into gear.
Aso urged parliament to pass the bills as soon as possible, stating that the budgets were indispensable in the government's bid to see the economy exit deflation and hit the central bank's 2 percent inflation goal in two years and overall revitalization of the economy.
Despite being the world's third-largest economy, Japan has been mired in deflation for almost 20 years and has accumulated the highest public debt in the industrialized world, at more than twice the size of its economy.
The government, however, expects the economy here to grow 1.4 percent in real terms and 3.3 percent in nominal terms in the next fiscal year, a prediction endorsed by the Cabinet Friday.
But despite the government's forecasts, economists here have highlighted the fact that the latest figures from the finance ministry show that the Cabinet's current efforts may fall short of expectations.
At an assumed growth rate of just 3 percent and taking into account efforts to rein in social security spending, the government is still charting a course for a primary budget deficit in the region of 6.6 trillion yen (64 billion U.S. dollars) for the fiscal year to March 2021, they said.
The figures run contrary to Abe's assurances to reduce the primary deficit by fiscal 2014/15 and balance the budget five years later by 50 percent, and Aso's confirmation Friday of these economic expectations and goals also seem lofty, they said.
In addition, Naoyuki Shinohara, the deputy managing director of the International Monetary Fund (IMF), urged Japan's central bank to avoid further monetary easing to stimulate the economy out of deflation, stating that such moves could create an economic bubble that was the original catalyst for Japan's deflationary malaise that has been pervasive over the over the past two-decades.
Shinohara, along with other leading economists, have cast doubt over whether Japan can achieve its 2 percent inflation target in two years, stating that the IMF predicts Japan will hit its target in 2017.
But while Shinohara and Abe have both called for a lowering of Japan's corporate tax rate, in a bid to attract further foreign investment, with Abe calling for the move to be included as part of a growth package to be announced in June this year, Aso remains concerned about the plan.
Japan's finance minister has repeatedly said that a rise in consumption tax and a reduction of corporate tax could undermine efforts to reduce the county's debt, stating that if corporate tax were to be reduced along Abe's lines, from 35 percent to 25 percent, the country's revenues from tax could be reduced on an annual basis by 5 trillion yen (48 billion U.S. dollars).
Aso has also said that as only 30 percent of Japan's corporations are eligible to pay tax, the reduction would have a muted effect on the economy and might not generate the kind of oversees investment in the timeframe Abe is hoping for.