August 26(Friday)

Matters undertaken by the Kan administration:
A general report (2)
Integrated Reforms to the Economy, Government Finances, and Social Security


This series overviews matters the Kan administration has tackled.  The second topic in this series is "integrated reforms to the economy, government finances, and social security."  Let us look back over the overall economic policy undertaken by the Kan administration, examining in turn the classifications of "economic growth," "putting public finances on a sound footing," and "social security."

(Numbers in red are sequential throughout this series of articles.)


Economic Growth

●The New Growth Strategy

A Cabinet Decision was taken on [9] the New Growth Strategy in June, after Prime Minister Kan assumed office.  Rather than economic growth through public works (the "First Approach") or growth strategies overly slanted towards supply side efficiency (the "Second Approach") as pursued in the past, the administration has promoted seven strategic areas and 21 national strategic projects, aiming at growth through the creation of new demand and employment (the "Third Approach").  The Kan government also established the 'Council on the Realization of the New Growth Strategy,' thereby creating the structure for implementing these projects in a full-scale manner.

In order to prevent the hollowing out of domestic industry, the [10] "Japan Inward Investment Promotion Program" was formulated in November 2010.  The Tax Reform Bill for FY2011 included a 5% reduction in the effective corporate tax rate while also providing funding towards domestic business locations for low-carbon industries.

In the area of economic partnerships with other countries, a Cabinet Decision was taken in November 2010 on [11] the 'Basic Policy on Comprehensive Economic Partnerships,' whereby it was decided that Japan will take the initiative to formulate trade and investment rules designed for the twenty-first century in the Asia-Pacific region.  Having successfully concluded negotiations with India and Peru, the administration started the process to work towards negotiations with the EU while also advancing efforts towards the realization of a Japan-China-Republic of Korea FTA

The Kan government was also engaged in revival of the agriculture, forestry, and fishery industries in a way that achieves a balance with the promotion of high-level economic partnerships.  Discussions were advanced in this area with the inauguration of the "Council for the Realization of the Revival of the Food, Agriculture, Forestry, and Fishery Industries" in November 2010.  Since that time a [12] "Midterm Proposal for the Revival of the Food, Agriculture, Forestry, and Fishery Industries in Japan" was compiled in August 2011, also taking into account the occurrence of the Great East Japan Earthquake.


●Promotion of economic countermeasures, etc.

Last September, the Kan government announced a "Three-Phase Approach to Economic Measures" that addressed the risks of a rapid appreciation of the yen and a slowdown in economies overseas.  That same month, the [13] "Three-Phase Approach to Economic Measures for the Realization of the New Growth Strategy" was implemented as "Step 1" (including among other efforts the mobilization of approximately 900 billion yen in supplementary economic expenditures), with [14] 'Gist of Comprehensive Emergency Economic Measures In Response to the Yen's Appreciation and Deflation' implemented in October as "Step 2" (including the mobilization of a supplementary budget of fiscal 2010 of some 4.9 trillion yen).  As "Step 3," [15] measures were taken to bring about the full-fledged implementation of the New Growth Strategy through compilation of the fiscal 2011 budget and reform of the tax system.

In addition, since the Great East Japan Earthquake, in order to advance measures for revitalizing Japan, the Cabinet took the decisions to approve the [16] "Guidelines on Policy Promotion: for the Revitalization of Japan" in May of this year and the "Overall Vision of Policy Promotion" in August with a view to laying out basic policies for economic and fiscal management as well as policies for ensuring the sustainability of public finances and social security, and for redesigning and refortifying national strategies toward new growth..


●Promotion of measures related to employment

Based on the "Three-Phase Approach to Economic Measures" and [17] the "Employment Strategy Dialogue Accord (Basic Policy on Employment Strategy 2011)" of December 2010, the Kan administration developed policies based on the three pillars of 'connecting' people with jobs, 'creating' new jobs, and 'protecting' existing jobs, including through the promotion of measures to foster the employment of new graduates and the use of employment adjustment subsidies to support efforts to maintain employment at companies.


Putting Public Finances on a Sound Footing

●Formulation of the "Fiscal Management Strategy"

The Cabinet took a decision to approve [18] the Fiscal Management Strategy in June 2010, soon after Prime Minister Kan assumed office.  In addition to setting the goals of "for the primary balance of national and local governments, by fiscal 2015 at the latest, halve the primary balance deficit relative to GDP compared to fiscal 2010, and by fiscal 2020 at the latest, achieve a primary balance surplus," this Strategy introduced basic rules on fiscal management, including the 'pay-as-you-go' rule and the 'fiscal deficit reduction' rule.

The Fiscal Management Strategy introduces a [19] "medium-term fiscal framework" that stipulates an upper limit on the general account expenditures for the following three years, with revisions to be conducted in the middle of the fiscal year each year, an approach developed through reference to UK structures.  Under the August 2011 revision, fiscal discipline is maintained, with the response to the earthquake disaster being managed separately.


●Dealing with the draft budget of fiscal 2011

In formulating the draft budget for fiscal 2011, [20] conventional allocations were changed boldly, with social security-related expenditures increased by 5.3% and subsidies for scientific research expanded by 30%, while expenditures for public works decreased by 5% in real terms.  Making use of [21] "special funding to bring vigor back to Japan," the administration placed particular importance on policies and measures appearing in the New Growth Strategy and the Manifesto that have a high degree of priority.

A third round of review of government programs (jigyou shiwake) was conducted in October and November 2010 to review special-purpose budget accounts and also conduct additional reviews of those areas in which the results of previous evaluations and various suggestions under this review program had not been accurately reflected.  Moreover, the results of the reviews of government programs thus far were reflected in the fiscal 2011 budget.

The government thus boldly modified the budget and concentrated on the high-priority policies and measures while also maintaining an expenditure framework of within 71 trillion yen and new issuance of government bonds of no more than 44 trillion yen, in accordance with the "Medium-term Fiscal Framework."


Reforming Social Security

Amidst ongoing major changes to Japan's socioeconomic circumstances, including a dwindling birthrate and aging population, in order to ensure peace of mind within the daily lives of the people, the Kan government endeavored to undertake an integrated reform of social security and taxes.  Examination of such reform began in October 2010, with the "Council for Intensive Discussion on Social Security Reform" tirelessly advancing discussions on the issue.  In June 2011, the [22] "final draft plan for the comprehensive reform of social security and taxation systems" was compiled, clearly setting out the measures to be taken towards the achievement of ensuring stable fiscal resources within the reform of social security while concurrently putting government finances on a sound footing.  (The details of these have been overviewed in other "Topics from the Prime Minister's Office" columns in the past.)

In addition, [23] "guidelines for the social security and taxation identification number system" were compiled in June of this year, aiming at the introduction of an identification number system as a kind of infrastructure that would enhance efficiency and transparency in both the social security and tax systems while also ensuring fairness in terms of both benefits and obligations.

The next article in this series will overview "measures taken from the point of view of the people as members of society at both the national and local levels."

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