Japan Echo Web

The Nation Needs to Conduct Fiscal Policy Reforms that Correct the Unfairness Between the Generations

As society ages, childbirth declines, and the economy globalizes, the Japanese economy and its fiscal situation have continued to stagnate and worsen since the collapse of the bubble economy in 1990. Public debt is about to reach a figure that is about 200% of our gross domestic product (GDP). And when the Great East Japan Earthquake hit on March 11, the situation was exacerbated.

While recovering from the quake is important, we must at the same time work on two reforms today to solve the medium- to long-term issues faced by Japan. One is a growth strategy to increase the potential growth rate of the Japanese economy, and the other is correcting the unfairness between the generations by reforming fiscal policy and social security.

In terms of the latter, the politicians are currently split between being pro-tax increase and anti-tax increase, but this is not the real point of this issue. As the term “political aging” suggests, as the population ages, democracy tends to give greater political power to the retiring generation that comprises the greater population volume, and the remaining younger and future generations may see their interests compromised. Accordingly, the real debate in this situation should be between maintaining the status quo, which expands the inter-generational inequities, or to correct the inter-generational inequities. Whether or not the latter occurs depends on how the new government deals with the Plan to Reform Social Security/Tax that the ruling party drafted in late June.

Truth be told, the current generation is passing the burden of fiscal and social security onto future generations, as the social security budget is inflating at a rate of one trillion yen every year and the national budget deficit is remaining a constant (e.g., 44 trillion yen in FY2011). It is imposing a load on future generations that they cannot possibly bear.