♠ Posted by Emmanuel in Japan at 6/18/2010 12:03:00 AMIt seems everyone except the United States is getting that old religion on fiscal prudence. True, the rather useless and non-binding US fiscal commission targets a primary budget balance by 2015 (meaning that revenues at least equal expenditures prior to interest payments), but Japan's effort is ever-so-slightly more credible in that their new PM Naoto Kan is leading the charge.
With Japan's total public debt amounting to about 200% of GDP, you have to wonder if these changes will be immediate enough to pacify markets about the fiscal state of Land of the Rising Sun. From Reuters:
Japan will set a goal of bringing its primary budget balance into the black within a decade in a fiscal reform strategy to be unveiled this month, Prime Minister Naoto Kan said, as part of efforts to rein its huge public debt. Kan, who took up his post after his unpopular predecessor quit abruptly this month, also repeated his pledge to keep fresh government bond issuance at or below this fiscal year's record 44.3 trillion yen ($483 billion) in the year from next April.The DPJ has made fiscal consolidation their party platform. What's more, Kan channels Blair and Clinton via Japanese-style triangulation and Third Way politics:
The plans spelled out by Kan are roughly in line with what financial market players say is needed for Japan to avoid a credit ratings downgrade. "We aim to include it in our fiscal goals," Kan told the lower house of parliament on Monday, referring to the target for the primary balance.
The primary balance, or the budget balance excluding revenue from bond sales and debt servicing costs, is in deficit by 33.5 trillion yen this fiscal year, or about 7 percent of GDP. The government, faced with the task of reining in public debt that is nearly twice the size of GDP, plans to lay out medium- and long-term fiscal targets before a G20 summit in Toronto next week.
Rating agencies have warned that Japan's sovereign debt rating could be cut unless Tokyo crafts a credible plan to fix the country's tattered finances.
Japan’s ruling Democratic party on Thursday made fiscal consolidation a centrepiece of its latest election manifesto, with Naoto Kan, prime minister, signalling a possible doubling of the 5 per cent consumption tax. The moves underscored Mr Kan's determination to make reining in state debt a top government priority, a policy stance that is winning his new DPJ administration friends among business groups. Greece’s fiscal crisis and the growing market sensitivity to sovereign risk have brought new urgency to long-standing concerns about Japan's yawning fiscal deficit and a gross government debt equivalent to nearly 200 per cent of gross domestic product.
Unveiling the DPJ’s manifesto for next month’s Diet upper house election, Mr Kan, who replaced Yukio Hatoyama as Japan's prime minister this month, said Tokyo could not delay fiscal reforms aimed at preventing a Greek-style fiscal collapse. The manifesto pledges that the ruling DPJ will make “every effort” to ensure bond issuance in the year from next April does not exceed the record level likely to be set in the current fiscal year and promises an early start to cross-party discussions on “fundamental reform of the tax system, including the consumption tax”.
The DPJ has previously said it would not seek to raise consumption tax within the next three years, but Mr Kan said discussions on the “appropriate” rate should be completed by next March at the latest. He pointedly cited a proposal from the Liberal Democratic party for the consumption tax to be doubled to 10 per cent. “I want to take that as one reference,” said Mr Kan, whose previous efforts as finance minister to promote debate on a consumption tax rise were blocked by party colleagues...
Mr Kan has called for a new economic policy that he dubs a Japanese-style “Third Way”, saying it will offer a new approach after the “public works-centred policies” of the late 20th century and the “excessive market fundamentalism” of the last decade. “We must support the improvement of productivity, but at the same time it is all the more important to expand demand and employment,” he said last week.