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Japan's Public Debt: Don't Mention the Debt
Source: http://newsonjapan.com
Source Date: Saturday, May 04, 2013
Focus: Electronic and Mobile Government, Institution and HR Management
Country: Japan
Created: May 07, 2013

To revive Japan's economy Shinzo Abe, its prime minister, has loosed three arrows. Temporary fiscal stimulus, monetary easing and structural reform together make up the strategy known as "Abenomics". But many reckon there needs to be a fourth dart in the quiver: fiscal consolidation over the longer term to tackle the country's vast public debt, which is expected to approach 240% of GDP next year.

 

Mr Abe's party, the Liberal Democratic Party of Japan (LDP), last year co-operated with its main rival, the Democratic Party of Japan (DPJ), to pass a bill to raise the consumption tax from 5% to 8% in April 2014 and up to 10% in October 2015. For Yoshihiko Noda, the DPJ prime minister at the time, the bill represented the end of a crusade by his party to get Japan back on fiscal track. The extra consumption-tax revenue of {Yen}13.5 trillion ($14 billion) meant that a goal set in 2010 of halving the primary budget deficit (ie, before interest payments) to 3.2% of GDP by 2015 looked achievable. This modest target would not reduce Japan's debt, but the bill was at least a small step in the right direction.

 

Then came Abenomics. The first arrow means spending an extra {Yen}10.3 trillion of stimulus on areas such as public works, reconstruction of the Tohoku region hit by the earthquake and tsunami in 2011, and other projects. This spending makes the debt problem worse in the immediate future and the 3.2% target well-nigh impossible to achieve. On the other hand it should boost economic activity, which would both lift tax revenues and make it easier to raise the consumption tax.

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