Likening the Government and Family Budget

(TAKAHASHI Yoichi, PPPC Chairman)

The Cabinet officially approved the draft budget FY 2015 on January 14. The major papers, like always, released the articles likening the government budget to that of a family.

It seems inaccurate to liken the government budget to a family. Among the economic actors which can be divided into family, corporation and government, the family depends on savings while the corporation’s main financial source is debts. Thus the family’s debts are usually not as much. The government budget is closer to that of corporation than the families’. Thus, an analogy of the government budget to that of family may sound as if the debts are just evil. Plus, such articles do not recognize the huge assets owned by the central government but criticize the debts alone. As the result, the articles follow the ordinary pattern by concluding that it is inevitable to raise the tax for reconstructing the finance.

Why are the press comments always on the same tone? It is because the newspaper reporters write their comments based on the explanatory documents distributed by the Ministry of Finance in advance. To rephrase, the reporters write the articles upon reading cribs and hearing lectures prepared by the bureaucrats.

Among 96.3420 trillion yen of the government budget FY2015, tax revenue is 54.5250 trillion, the other incomes are 4.9540 trillion yen and the government bonds amount to 36.8630 trillion yen.

By a metaphor of the budget to the family by converting a 1 trillion yen into \100,000, the family expenditure is \9.63 million, in which a father’s income is \5.45 million and a mother’s income is 0.5 million. The rest 3.69 million would be the debts. Because there are few families having that much debts in reality, readers may be astonished by the vast number of debts upon reading the articles.

Although the author doesn’t think it is appropriate to liken the government budget to the family, let me speak up one thing. As a matter of fact, the recently-weakened yen has brought about profits in the government’s foreign currency reserves: roughly \20 trillion. A metaphor of the fact will be the following.

The mother has used financial techniques behind the father’s back and made 200 million of the secret profits. But the father doesn’t know the fact and has lived in destitution, while the mother was smiling. Where did the 200 million yen go?

“Bedrock” Regulatory Reforms and Growth Strategy

(HARA Eiji, PPPC President)

Reform of “Bedrock” Regulations: Progress and Challenges

Bedrock Regulations: main issues		Progress in 2014	Challenges
<Regulations stumbling the “growth industry in the future”>
Agriculture	JA reform	△: decided course in June	Bill scheduled to be submitted à content yet known (completion or adaptation?)
	Corporate ownership of farmlands	-- (little progress)	No schedule à start?
Medical Care	Treatment uncovered by public insurance	△: decided course in June	Bill scheduled to be submitted à content yet known (completion or adaptation?)
	New medical school	-- (little progress despite discussion since 2013)	Schedule yet known à advancement?
Nursery	Corporate entry, equal-footing	-- (no progress)	No schedule à start?
Energy	Power reform	○: enactment of the second-round bill (entry into power sales)	Third-round bill scheduled to be submitted (content yet known; completion or adaptation?)
Education	Privately-managed public schools	△: bill (NSSZ act) submitted but discarded in Diet	Bill to be submitted again?
<Cross-sectorial regulations>
Labor	Working-hours regulation	△: decided course in June	Bill scheduled to be submitted à content yet known (completion or adaptation?)
Foreigners	Expansion of working visa	△: bill (NSSZ act) submitted but discarded in Diet	Bill to be submitted again?
Transport Infrastructure	Opening infrastructure to private sector (e.g., lifting ban on road concessions)	△: bill (NSSZ act) submitted but discarded in Diet	Bill to be submitted again?

(chart: drafted by PPPC)

Prime Minister Shinzo Abe pledged in January 2014 that “over the next two years, no vested interests will remain immune from my drill.” This direction was maintained in the growth strategy released in June (the Japan Revitalization Strategy Revised in 2014) and the LDP’s party line for the December 14 Lower House election.

The most remarkable point of the Cabinet’s growth strategy, known as third arrow of the Abenomics, is that it has the heaviest weight on reforms of the country’s so-called “bedrock” regulations, i.e., vested interests. The past administrations and Cabinets had released their growth strategies almost every year in eye of supporting and guiding such industries as agriculture, health care, environment/energy, etc., by regarding them as “growth industry in the future.” Nonetheless, unfortunately, these industries have still remained to be the “growth industry in the future.” The main reason is that there are full of “bedrock” regulations in these industries which have restricted new entries or ideas and hence kept the industries untouched.

Upon hearing a phrase “regulatory reform”, one may recall a stereotyped image that it “intends convenience for major companies and leaves behind the interests of consumers or workers.” However, such a criticism does not make sense at all from the author’s experience of having been involved with the several regulatory reforms from inside the government, municipal government, and also as a private sector member. Regulation almost always causes vested interests. It is easy to think of the relationship between companies already in the industry and restriction of new entries. It is because of such regulatory vested interests that regulations have been maintained or sometimes even enhanced although their necessities have been lost due to socioeconomic changes. Very often the major companies are in the side of benefiting from such vested interests and therefore intend to obstruct regulatory reforms.

Meanwhile, the most disadvantageous due to such “bedrock” regulations are the general consumers and people. This could be understood by an image that consumers and people are deprived of additional alternatives of goods and services due to the excessive regulations on new entries. Therefore, reforms of the “bedrock” regulations are the inevitable way to release the “growth industry in the future” from various restrictions and to deliver advantages to the whole economy and society

The Japan Revitalization Strategy Revised in 2014, under the slogan of “reforms of ’bedrock’ regulations over the next two years,” decided to start actual efforts on such “most-solid among the bedrock” issues as the JA reform and medical treatment uncovered by public insurance which have been discussed but untouched for decades. At the same time, the Strategy showed determination to promote reforms by tagging the Cabinet Office and ambitious areas (local government and private sector) by utilizing the framework of National Strategic Special Zones when tackling the challenges which are unapt to do uniformly throughout the country. These efforts can be regarded as the remarkable accomplishment making differences from the past administrations.

In the meantime, there are concerns whether it can really be implemented.

1.         There are quite a few “bedrock” regulations unmentioned in the Japan Revitalization Strategy Revised in 2014. One example is the provision in agriculture that “general joint-stock companies cannot own farmlands.”

2.         With regard to the JA reform, it only decided a course to advance reforms in June. A key to such reform is the actual drafting of the bill and specific legislative designing. It accompanies concerns that some will take the teeth out of a bill in its drafting process.

3.         There are more to do with the National Strategic Special Zones. While the bill entailing additional regulatory reform measures (relaxation of residing conditions of foreigners, lifting ban on privately-managed public schools, etc.), in addition to the initial reform menu in 2013 (floor-area-ratio, bed number in hospitals, etc.), was submitted to the extraordinary Diet session in autumn, it was discarded due to the Lower House dissolution and therefore shelved to the ordinary Diet.

To summarize, there was virtually no progress of “bedrock” regulatory reform realized as legislation last year (an exception is the second-round legislation of power system reform enacted in the ordinary Diet session). One year has already passed since Abe’s “two years” promise in Davos, meaning there is just one year left to realize his pledge. It requires great attentions to what extent the Cabinet will realize reforms of the “bedrock” regulations from the ordinary Diet session to be convened in this January.

Those who do not appreciate the increased employment and decreased bankruptcy

(TAKAHASHI Yoichi, PPPC Chairman)

The first and second arrows of the Abenomics are just normal economic policy in the global standard. It was easily predicted that they would cause the employment to increase and bankruptcy to decrease, especially after the irresponsible macroeconomic policy under the DPJ administration.

Number of Workers (ten thousand)

The number of bankruptcy had been dropping under the DPJ government, but its speed has been accelerated since Abe gained the power (see the slant).

Number of Bankruptcy

It was so childish that DPJ opposed to the increased employment and decreased bankruptcy, and there was no economic debate in the December 14 election. Although many argue that the landslide victory of LDP may be attributed to unpreparedness of the opposition parties, there is a wide gap of understanding of the macroeconomic policy between the Abe Cabinet and DPJ. DPJ must study more about the macroeconomic policy.

In the meantime, because the mass media don’t know the macroeconomic policy, neither, they don’t know why LDP defeated DPJ all the three times in the 2012 Lower House, 2013 Upper House and the general election this time. One cannot easily be defeated in elections as long as they managed the economy well.

Yet, LDP was on the verge this time since it conducted the tax-hike from this year. If the Cabinet was deciding a second tax-hike from next October, LDP would have lost the nationwide local election next year. If that was the case, the Abe Cabinet would have collapsed and soon be abandoned by the Ministry of Finance.

Critiques who don’t know the economy regard the currently decreasing bankruptcy not as a result of the Abenomics but preservation of zombie companies. Because such critiques don’t understand the macroeconomic policy, they tend to look at the third arrow alone. However, it takes 5 years or so to see the influence of the third arrow visibly, so all we can do at this moment is to release as many alternatives as possible. And the percentage of which such alternatives go successful is 3 out of 100 or 1000.

It is nothing wrong to talk about importance of the third arrow, but it becomes harmful when they speak of the decreased bankruptcy as preservation of zombie companies. I call such critiques “sadistic liquidation debater”. This type of debater can often be found in the management consultants, who are harmless as long as they speak management of individual company. However, they turn to be harmful when they start talking about the macro or industrial base. They are ignorant and indifferent to the macro-economy, and always assume a full employment. That’s why they don’t understand that the deflation is causing the unemployment and bankruptcy to increase but they attribute the unemployment and bankruptcy to laziness or individual responsibility of the workers. They consider the reduced bankruptcy as preservation of zombie companies, and often regard the increased employment as spoiling of the workers.

Comparison of Party Platforms (2): Economic Measures, Growth Strategy

This time, let us summarize the main parties’ policy on economic measures and growth strategy based on the parties’ official platforms.

Liberal Democratic Party

https://special.jimin.jp/political_promise/bank/index.html

Komeito

http://www.komei.or.jp/campaign/shuin2014/manifesto/manifesto2014.pdf

Democratic Party of Japan

http://www.dpj.or.jp/global/downloads/manifesto2014.pdf

Japan Restoration Party

https://ishinnotoh.jp/election/shugiin/201412/pdf/manifest.pdf

Party for Future Generations

http://jisedai.jp/news/20141122.html

Japan Communist Party

http://www.jcp.or.jp/web_policy/html/2014-sousenkyo.html

1.         Economic measures

LDP	Measures considering the inflating fuel prices and reducing rice prices l  Specific measures to be taken promptly (support to investment in new energy, appropriate cost-transference of uprising cost, etc.) l  Emergent measures to be taken promptly given the uprising fuel cost (support to highly fuel-reliant industries such as agriculture and transport, expansion of income insurance as safety net, etc.) l  Continuance of reduced tax on housing loans, decreasing interest rates of loans of Housing Support Agency, creation of residential eco-points, etc.
Komeito	Emergent measures to stimulate recovery of individual consumption and investment in eye of positive economic cycle l  Measures to deliver fruits of economic growth to family, SME and local economy and to connect corporate profits to employment and wages l  Support to low and mid income brochures such as expansion of simple subsidy l  Support measures to acquiring houses such as reducing housing loans l  Reconsideration of the green tax on vehicles l  Support to spontaneous efforts by the local governments in cold and depopulating areas such as provision of gasoline and kerosene to hospitals and social welfare facilities l  Support to highly fuel-dependent industries such as agriculture and transport and small-sized corporations (safety net corresponding to uprising fuel cost, continuance of discounts of highway fees, introduction and expansion of surcharge, etc.) l  Further measures toward energy conservation and renewable energy l  Support to finance of SMEs (safety net loans and insurance, flexible implementation of loans in case of disaster, etc.)
DPJ	Countermeasures to increasing fuel cost and weakening yen (subsidy targeted at SMEs, agriculture, etc.)
JRP	Economic measures overcoming the distributive public works projects l  Expansion of reduced tax on economical housing l  Measures on weakening yen (reducing the gasoline tax, etc.) l  Provision of education voucher to low income brochures l  Creation of exemption system of gift tax subject to marriage and child-rearing money l  Welfare: temporary subsidy to corporations which increased employment l  Promotion of the smart community projects such as local assumption of natural energy and co-generation l  Life support to the needy
Future	---
Communist	Prompt measures on the rice price

2.         Growth Strategy

LDP	Further expansion of the positive economic cycle to every community by swift implementation of the Japan Revitalization Strategy l  Corporate tax reform: reducing the corporate tax rate to 20s in several years l  Creation of environment toward private-led economy: drilling the bedrock regulations in two years and expansion of the National Strategic Special Zones l  Legal support to real estate industry, stimulation of investment, promotion of residential reform and used-housing industry l  Enhancement of corporate governance l  Construction of no.1 monetary market in Asia l  Necessary measures to be considered and taken on growth money and safety net money l  Comprehensive measures to stimulate industrial metabolism and acceleration of ventures l  R&D enhancement, human resource, matching of industry-university-government, etc. l  Tourism, Cool Japan strategy, IR l  Disaster-resilience l  Formation of high-speed railway networks including shinkansen and linear car, container ports, enhancement of the Haneda and Narita airports, etc. l  Local revitalization in which local governments play the main role (decentralization reform, correction of financial gaps, compact city, etc.) l  Local revitalization through regulatory reform, creation of local employment and industry l  Revitalization of agriculture emphasizing local originalities and resources l  Comprehensive support to management of construction, transport and shipbuilding industries which carry out the local economy l  Agriculture to be transformed to growth industry, doubling income of farmers and villages through deceasing production cost and expanding size, utilization of robots and computers, branding, etc.
Komeito	Firm implementation of the growth strategy l  Raising the energy and environment (renewable energy, low CO2 society, etc.) l  Raising the health care and nursery (innovative technology, ICT, development of robot nursery devices, etc.) l  Aggressive agriculture (specific export strategy, branding through 6th industry, farmland concentration, etc.) l  Industrial competitiveness of dairy farming, fishery and forestry l  Action plan toward promotion of robot industry l  Vital, warm community to be maintained through local revitalization (long-term vision on local revitalization, local employment, transference of the central government function, compact city, etc.) l  Support to SMEs as carrier of energy/environment and heath care/nursery l  Support to succession of SMEs (matching of companies without successor and business operators, reducing burden of gift tax and inheritance tax, etc.)
DPJ	Policy resources to be concentrated at green, life, agriculture and SMEs. l  Disposable income to be increased through investment to people which changes anxiety to hope such as child-rearing, employment and retirement life l  Corporate tax to be reduced after securing alternative tax resources l  Creation of comprehensive subsidy to local governments, decentralization reform bill to be proposed to accelerate transference of function and budget of the central government, simplification of procedures l  Promotion of innovation of regenerative medicine, bio, ICT. Marine and space development l  Support to business startup, SME support to be integrated under a newly nominated minister l  Local revitalization and employment to be realized through renewable energy and SME support. Basic Act on promotion of decentralized energy to be proposed. l  Enhancement of the life industry l  Individual compensation to farmers to be legislated, number and income of farmers to be increased through promotion of agriculture l  Promotion of domestic woods, stabilization of fishery management l  Formation of compact city, promotion of reform business of used-residents,
JRP	Thorough competition policy to become “earning nation” l  Thorough implementation of competition policy in all the industries l  Medical care and social welfare to be transformed to growth strategy (standardization of medic through utilization of big data, lifting ban of mixed diagnosis, corporate entry, etc.) l  Agriculture to be shifted to growth industry, JA reform, farmland act to be revised (abolishment of rice production adjustment and promotion of rice export, privatization and division of JA, stimulation of entry by allowing corporate ownership of farmlands, etc.) l  Necessary legislative measures to be taken to open the governmentally-founded infrastructure business l  Opening of the communication industry (complete privatization of NTT, capital division between infrastructure and services, revision of the radio act, etc.) l  Tourism and culture to be new money-making icons (Singapore-type integrated resort to be realized, selection and concentration of local airports, privatization of airport management, etc.)
Future	Regulatory reform and defeating the vested interests by doshu-divided efforts l  Stimulation of entry into the agriculture, health/nursery care and energy by overcoming the bedrock regulations l  Shift into least-necessary regulation/rules to sustain free and fair market while securing the national life and health l  Construction of a capital/labor market which distributes production resources freely and fairly, creation of safety net which enables re-challenges l  Thorough competition policy “from subsidy to vouchers” l  Expansion of free trade zones l  Capital regulation including a targeting-zone system on main currencies l  Agriculture to be transformed to attractive, internationally-competitive industry
Communist	Stopping runaway of the Abenomics: shifting to life first will recover the economics l  Tax reform which demands certain burden on major companies l  Economic reform that utilizes the internal reserves of major companies to increase the national income l  Shifting to support measures in eye of all SMEs as the main pillar of the economy l  Agriculture to be restored by retreating from the TPP negotiations (drastic enhancement of price and income compensation by recognizing the agriculture as the primary industry)

(charts drafted by PPPC)