By Tetsushi Kajimoto and Yoshifumi Takemoto
TOKYO (Reuters) -Japan on Friday announced its mid-term economic policy framework, featuring Prime Minister Fumio Kishida’s “new capitalism” priorities, such as efforts to stem a declining birthrate with increases in childcare spending.
The outline, which will serve as a backbone for the government’s economic policy set to be finalised in June, made no mention of how to fund such spending – a sticking point before a snap election Kishida may call in the coming months.
The draft policy outline – the barebones of a wish list on a single sheet of paper – also focused on economic security, urging private-public sector joint investment to strengthen supply chains and investment in products including chips amid trade frictions between the United States and China.
It also called for achieving structural wage hikes and reinforcing investment in human resources as well as encouraging climate friendly innovation and digitalisation.
In Japan, fiscal reform is an urgent task for the industrial world’s most heavily indebted government, with public debt at more than 250% of its gross domestic product (GDP).
Still, rounds of heavy anti-COVID stimulus spending made its budget-balancing target, excluding new bond sales and debt servicing costs, by the fiscal 2025 year end even more elusive.
Kishida has ruled out raising the consumption tax to fund the cost of new childcare. Some ruling party lawmakers have called for issuing bonds, though the government says no decision has been made.
Of the 3 trillion yen ($22.21 billion) needed each of the coming three years to boost childcare, roughly 1 trillion yen would need be funded by issuing bridging bonds, which will be repaid in future by means such as tax hikes, although details remain undecided.
The government is struggling to secure stable sources of permanent funding for measures aimed at reversing Japan’s declining birthrate. In addition, speculation lingers that the premier may call snap general elections by the June 21 end of the current parliament session, sources with knowledge of the matter told Reuters on condition of anonymity.
Such moves could cause a delay to a decision on funding sources for childcare, even though a mid-year policy roadmap is tentatively set for approval around mid-June, one of the sources said. If Kishida decides to call a general election, his ruling Liberal Democratic Party (LDP) would shift focus on an election campaigning platform, leaving issues of funding in the backseat.
($1 = 135.0500 yen)
(Reporting by Tetsushi Kajimoto and Yoshifumi Takemoto; Editing by Leika Kihara and Louise Heavens)