PM Kishida Outlines Budget, with an eye on Japan’s Population Decline

2 mins read
September 26, 2023

Prime Minister Fumio Kishida presented a multifaceted supplementary budget on Tuesday, presented as a way to safeguard Japan from inflationary strains, stimulate wage growth, and counter the demographic dilemma of a dwindling populace.

The Key Moves:

  • Wealth Redistribution: Kishida, a self-styled (and debatable) advocate for wealth redistribution, has signaled a cut in taxes and social security burdens. Additionally, various benefits are on the horizon, particularly poignant given Japan’s challenging fiscal backdrop — the most concerning among developed nations.
  • Reallocating Funds: A strategy is in place to repurpose emergency funds, previously earmarked for crises like pandemics, towards ensuring consistent wage growth.
  • Aiding Businesses: Provisions involve subsidies to counteract spiralling gasoline costs and electricity bills. Furthermore, substantial support is directed at SMEs grappling with wage increments and labor shortages. A decisive push into strategic sectors, such as semiconductors, is also envisioned.

Budgetary Commitments: This economic directive will be financed via a supplementary budget, revolving around five pillars:

  • Counterbalancing inflation’s impact on households.
  • Promoting wage growth.
  • Amplifying investments.
  • Addressing Japan’s population downturn.
  • Safeguarding Japanese citizens.

The Context

  • Strategic Economic Shift: Kishida accentuates Japan’s ambition to transition from a “cost-cut” model to an economy burgeoning with salary raises and corporate investment. “The window of opportunity is open, and we must seize it,” he declared.
  • Political Reverberations: The announcement’s timing has stoked speculations of Kishida contemplating a dissolution of the House of Representatives, potentially triggering a snap election. Voices within the Liberal Democratic Party are lobbying for a package possibly eclipsing ¥15 trillion ($101 billion).
  • Inflationary Quandaries: Skyrocketing energy and raw material import costs compel Japanese companies to adjust wages. However, there’s palpable anxiety that bolstered fiscal injections could accentuate inflation. Significantly, inflation rates have persisted beyond the Bank of Japan’s 2% threshold for 17 consecutive months (On a side note, inflation continued in almost all developed countries at rates higher than Japan’s), reaching a staggering 4.2%.

Addressing Income Barriers Head-On:

  • Challenging Earnings Ceilings: Central to the economic measures is the reform of existing “annual income barriers”. Due to fiscal implications, present rules dissuade specific workers from extending their work hours. For instance, spouses employed at firms with fewer than 100 workers and earning more than ¥1.3 million annually generally lose dependent status, increasing social insurance premiums. Consequently, many limit their hours to stay below this threshold. Similarly, a rule impacts those earning above ¥1.06 million at larger firms.
  • Reform Proposals: The government aims to adjust these thresholds. Starting in October, plans include allowing people to maintain dependent status for two consecutive years, even if incomes breach ¥1.3 million. For the ¥1.06 million limit, subsidies are being considered to aid companies in raising wages for affected workers, offsetting the social insurance premium costs.
  • Economic Ripple Effects: These income thresholds have historically deterred many part-timers from amplifying their work hours. As such, while wages for Japan’s part-time workers have surged, actual work hours have declined.

Enhancing Workforce Competence & Mitigating Inflation:

  • Skill Development Focus: The initiative emphasizes supporting individuals eager to amplify income through skill enhancements.
  • Tackling Inflation: Persistent inflation necessitates action. Plans include an extended subsidy program for oil wholesalers to moderate fuel prices. An alarming average retail gasoline price recently touched ¥186.5 per liter, linked to the yen’s fragility and crude oil price hikes.

The Bottomline:

Kishida’s proposal signals a more ambitious endeavor to recalibrate Japan’s economic trajectory, harmonizing between inflation, wage dynamics, and demographic challenges. The detailed measures demonstrate commitment, although navigating this landscape requires careful steering.

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