TOKYO, June 7 (Reuters) – Japan is determined to mobilize all available policy options while putting the economy above fiscal reform, according to a draft of the government’s semi-annual policy framework reviewed by Reuters on Wednesday, signaling its will to maintain tax reforms. tap wide open for approaching elections.
The draft framework, which will be presented to Prime Minister Fumio Kishida’s Supreme Economic Advisory Panel, provides the basis for medium to long-term macroeconomic management and will be approved by Kishida’s cabinet later this month, along with a separate action plan for its “new capitalism” agenda.
Kishida, seen as a fiscal hawk, also hopes to strike a delicate balance between fiscal stimulus and tapering off, with the framework calling for normalization of fiscal generosity in crisis mode.
Still, the second-year framework dropped a specific time frame for the goal of balancing the budget, reflecting a compromise Kishida had to strike with reflationary forces within his own Liberal Democratic Party (LDP).
“We have not raised the flag of fiscal reform,” the box read, in a tacit reference to Kishida’s goal of achieving a primary budget surplus by the fiscal year ending March 2026, excluding new bond sales and debt servicing costs.
The target was originally scheduled to be met in early 2010, but has been pushed back four times.
Since taking office in October 2021, Kishida has pledged to establish a virtuous cycle of growth and redistribution under his “new capitalism”, while suggesting that previous governments’ stimulus policies created social divisions and inequality.
To accelerate the drive towards the “new capitalism”, the new framework calls for a structural increase in wages and the expansion of financial assets, including a decision by the end of 2024 to increase contributions to the defined contribution pension system and the review of asset managers.
“We will achieve sustainable growth by mobilizing fiscal, tax and regulatory reforms, with the aim of ending deflation and sharp declines in childbirth rates,” it said, pointing to downside risks to the global economy from a prolonged war in Ukraine, the global trend of monetary tightening and increased inflation.
Reporting by Tetsushi Kajimoto; Edited by Christian Schmollinger