The Need for Fiscal Reform in Japanese Economy
In a proposal to Japanese Finance Minister Taro Aso, the Fiscal System Council has issued a warning against possible complacency in the wake of prolonged monetary easing and low borrowing costs. The council has warned that the government may not focus on fiscal reform as long as rates remain lower than the rate of economic growth which would help to reduce the debt-to-GDP ratio.
Japan, the world’s third largest economy, grapples with the distinction of having the highest public debt among developed economies worldwide. Presently, Japan’s public debt is double that of its economy valued at $5 trillion.
The Fiscal System Council’s proposal could serve as guidance on planning next year’s budget and the extra budget for the current fiscal year. However, the government may not be too keen on undertaking fiscal reform, focusing instead on increasing spending in a bid to revive Japan’s economic growth.
The council discusses the need for a flexible fiscal policy in the face of growing external risks to economic growth even as it lauded the government for implementing the twice delayed sales tax hike. According to the proposal, the government should focus on ways to sustain social spending and ensuring public finances by tightening spending plans and boosting tax revenues.
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