Tackling the future today

Japan's baby boomers will start becoming eligible for the pension in 2012 and by 2022 many of them will be in their late seventies and early eighties. This unprecedented aging of society will lead to an increase in social security expenditure and a decline in personal financial assets as pensioners draw down their savings.

At the same time, it is widely known that Japan's fiscal position is the worst among advanced economies. Despite this, we have been slow to recognize that fiscal deficits can trigger a crisis. But perceptions changed recently when the fiscal crisis in Europe served as a wake-up call to Japan. Thankfully, there is still time to rectify Japan's fiscal demise.

The government deserves credit for its fiscal management strategy announced in June. The strategy is a good start as an overriding policy. It outlines concrete targets and timelines while taking into account the current global economic climate, growth forecasts, and past mistakes in dealing with slowdowns in the economy. In implementing the strategy, however, I would point to two issues that should remain top of mind.

First, it is important to strike a balance with economic growth. We should not rush to achieve quick results. Without an increase in taxes, any moves to cut the fiscal deficit will have a negative impact on economic growth. We should walk down the path of fiscal reform one step at a time, encouraging economic growth along the way by cutting corporate taxes, pushing ahead with deregulation, and implementing other initiatives.

The government's fiscal management strategy must be closely linked to growth strategies. It takes time to fix the finances of a country that has been building up such a huge deficit over a prolonged period. We need to be patient.

We should also not go down the road currently being debated whereby regulations are tightened so quickly that the real economy could be affected.

Second, to ensure that these medium to long term initiatives are successful, politicians must have the power to turn policies into reality. If Japan's fiscal position were to trigger a full-blown economic crisis, it would have grave consequences for the whole population. To prevent this, the government and opposition need to work together to restore our fiscal position over the long term and ensure we create a better tomorrow for future generations.