MNI: Japan Govt Fiscal Package To Push for Productivity Gains

By Max Sato

     TOKYO (MNI) - The Japanese government's latest economic stimulus package

aims to boost labor productivity by offering tax credits, raise programing

spending and implementing deregulation. 

     The details of the measures are scare at this point as the government will

draft the budget for fiscal 2018 later this month. The package and budget will

be debated in a 150-day ordinary session of the Diet that will begin next month.

     "By putting together all possible measures and supporting strong wage hikes

and investment, we will make sure the economy will move out of deflation and

nominal GDP will reach Y600 trillion," the government said in a statement

released after an extraordinary cabinet meeting.

     Revised GDP data released Friday showed that Japan's nominal GDP hit a

record high of Y549 trillion in the July-September quarter.

     In the three years through calendar 2020, the government wants to raise the

growth of productivity -- per-capita hourly real GDP produced by workers -- to

an annual rate of 2%, up from 0.9% average growth rate in the five years through

2015.

     It also plans to push up the total amount of business investment in

equipment by 10% from the level seen in fiscal 2016.

     The government will also encourage firms to raise wages by at least 3%

every year, starting in fiscal 2018, although this target seems overly

optimistic given unions are seeking a modest 2% hike and are focusing on job

security and improving other working conditions.

     While the output gap has turned positive and continues to rise, "in order

to realize further growth, we need to raise the potential growth rate by taking

supply-side measures," it said.

     "To this effect, it is necessary to actively push for investment aimed at

increasing productivity by taking advantage of record corporate profits."

     Nominal wages have posted modest gains but real wages remain depressed due

to the recent rise in the cost of living. Bank of Japan officials have said

higher productivity would initially exert downward pressure on prices but that

it will eventually raise growth potential and lead to a rise in real wages.

     Japanese policymakers have been urging corporations to share more profits

with workers but firms remain cautious about raising base wages amid uncertainty

over the outlook for domestic and global demand.

     The government package will cut business taxes for small firms that are

raising wages and investing in staff training. In the next three years, it will

encourage about one million firms, or 30% of small businesses, to introduce

information technology tools designed to raise productivity.

     In the next 10 years, the government will also help aging small business

owners find successors through innovation assistance and promotion of mergers

and acquisitions.

     The number of small business owners who will be aged 70 years or older is

estimated to rise to 2.45 million by 2025. About half of them, 1.27 million, do

not have successors at this point.

     "This accounts for about 30% of Japanese firms. If the closing of small

businesses rises sharply, it is feared that a total of about 6.5 million jobs

and about Y22 trillion in GDP will be lost," the government warned.

     Prime Minister Shinzo Abe had already decided to "make a drastic shift" in

his sales tax hike plan and not use much of the additional tax revenue to repay

the huge public debt -- a move economists said would further delay the process

of fiscal consolidation and reduce the flexibility of fiscal policy.

     Initially, the government planned to spend Y4 trillion of the estimated tax

revenue increase from raising the sales tax rate to 10% to pay down the debt and

Y1 trillion on improving social security programs.

     In the latest plan for the sales tax hike due in October 2019, the

government will spend a half of the estimated Y5 trillion revenue increase on

education, child-rearing support and care-giving staff, and the half on fiscal

consolidation.

     The government will implement free high school and university education for

qualified students from low-income families in a bid to reduce income inequality

from widening the gap in access to higher education.

     As the working population continues to shrink, the government will also

provide fiscal support to child-rearing and care-giving while seeking to further

improve working conditions for care-givers.

     The lack of care-giving and daycare services as well as notoriously long

working hours at many firms are hampering women from joining or returning to the

workforce, a factor limiting the economy's growth potential.

     Last month Abe was reelected prime minister in a special Diet session after

leading the ruling coalition to a two-thirds majority of the Lower House in the

Oct. 22 parliamentary elections.

     Abe will continue his reflationary policy mix of aggressive monetary

easing, increased fiscal spending and structural reforms, although the pace of

reforms in public pension and medical services as well as labor practices will

remain slow, limiting a rise in the economy's growth potential.

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

[TOPICS: MAJDS$,M$A$$$,M$J$$$,MC$$$$,MGJ$$$]