TOKYO – Breaking away from his predecessors, Japanese Prime Minister Fumio Kishida put income distribution at the heart of his inaugural political speech on Friday, emphasizing measures such as helping groups in difficulty while avoiding themes such as deregulation.
Unlike former Prime Minister Yoshihide Suga, who used the word “reform” 16 times in his first political speech to parliament, Kishida did not utter the word once.
The difference underlines Kishida’s call to pivot towards a “new capitalism” and to move away from the neoliberal orthodoxy that has prevailed in the Liberal Democratic Party in power since Prime Minister Junichiro Koizumi. It also reflects the party’s hope that these policies will appeal to voters in the next general election.
Instead, the Prime Minister made “distribution” one of the key words in his speech, emphasizing the redistribution of wealth by investing in the middle class. He called growth and distribution strategies the “twin wheels” of his economic vision, while stressing that “without distribution we cannot have the next wave of growth”.
Kishida on Friday asked his cabinet to quickly develop economic stimulus measures. The aim is to have a package ready after the elections and to adopt a supplementary budget by the end of this year.
Tax expenditures are at the heart of Kishida’s distribution plans. The Prime Minister promised financial support for households with children, contract and temporary workers and others, as well as help for businesses regardless of region or sector.
It remains to be feared that if the new administration relies too heavily on the size of spending alone, it risks increasing debt while leaving the economy to stagnate.
Suga and his predecessor Shinzo Abe combined heavy fiscal spending with ultra-accommodative monetary policy, bringing total long-term debt nationally and locally to over 1.2 quadrillion yen ($ 11 trillion at current rates) compared to 932 trillion yen at the end of fiscal 2012.
The economy has not grown so quickly. Japan’s debt-to-gross domestic product ratio increased by more than 30 percentage points between fiscal 2012 and fiscal 2020 to reach 225 percent. The lack of progress on growth strategies, the third of the “three arrows” of Abenomics, is cited as the reason.
Kishida said he plans to “dramatically increase support from the tax system” for companies that raise wages, with the aim of increasing the share of income that goes to work.
But even with far-reaching incentives, the government cannot force companies to raise wages or invest more, and it will be difficult for many to take such steps without first improving their profitability. Tokyo will need to create an environment to facilitate both consumers and businesses contributing to economic growth.
Boosting the productivity of the workforce is an important step. Japan’s GDP per hour worked stood at $ 48 last year, nearly 30 percent below the Group of Seven average of $ 65, according to data from the Organization for Economic Co-operation and Development. The United States has kept about 50% ahead of Japan over the past decade.
Policies such as regulatory reform can promote productivity-boosting investments and attract capital to Japan. It will also be important to encourage the transition to high added value sectors and to support the retraining of workers for a more digital economy.