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The Keidanren's Proposal: "Growth Strategy 2010"


April 2010

Economic Policy Bureau
Nippon Keidanren

The Keidanren's Proposal: "Growth Strategy 2010" <PDF>

1. Putting the new economic growth strategy into practice

The economic growth targets (nominal growth of over 3% and real growth exceeding 2%) and basic direction established by the government in its New Growth Strategy (Basic Policies) at the end of 2009 were commended in the business community.

Plans to translate the comprehensive growth strategies into reality, through collaborations between the public and private sector, should preferably be implemented swiftly (in particular, there are strong calls for the government to take early steps to create a business environment that places Japan on equal footing with the international community), with a view to creating domestic employment through enhancing the international competitiveness of Japanese companies.

[Perspectives necessary in formulating and implementing the New Growth Strategy]
  1. 1) Creation of employment through enhancing the international competitiveness of Japanese companies
    • Reducing the effective corporate tax rate that are indispensable for a good showing with respect to global competitiveness (Early reductions from 40% (highest level in the world) to 30%. The average rate for OECD member countries has fallen from 33.9% in 2000 to 26.3% in 2009.)
    • Establishing a flexible labor market equipped with a safety net, which takes into consideration the welfare of irregular workers.
  2. 2) Policy-making that captures aspects of demand and supply, as well as major corporations and medium-small companies, in an integrated manner
  3. 3) Promoting comprehensive reform of taxes, public finance, and social security
  4. 4) "Public Innovation" (need to change the mentality of bureaucrats, by enhancing a regional government system (doshu-sei) or e-government, etc.)

2. Early comprehensive reforms of taxes, public finance, and social security

(1) Public finance

The business community is concerned about fiscal conditions that the total long-term debt of the central and local governments is more than 860 trillion yen, and there are fears that the divergence of the fiscal balance would not be controlled. FY 2011 budget formulation is expected to be a greatly difficult task, and it is a pressing issue to maintain credibility to the value of government bonds.

[Toward early improvements in fiscal soundness]
  1. 1) Setting targets for fiscal soundness improvements
    • Setting the achievement of a surplus in the primary balance as the midterm target, aim to improve the fiscal balance including interest payments, and in the long-term, to reduce debt to GDP ratio in a stable fashion.
  2. 2) Enacting the Revenue and Expenditure Reform Act (provisional name)
    • Clarify fiscal administration responsibilities, and provide institutional guarantees for efforts to improve fiscal soundness.

(2) Social security

A future will arrive where the ratio of citizens supporting each senior citizen comes close to 1:1 (the ratio was 3 people to every senior citizen in 2005, and is predicted to be 1.7 people to every senior citizen in 2030). In order for the economy and society to remain vibrant, we face the urgent tasks of increasing tax burden, and redesigning the system to avoid excessive dependence on social insurance premiums made by the current working generation. At the same time, efforts should be put into reinforcing our social safety net so as to build up a "Trampoline-type Society."

[Cross-sectional reform of the social security system and other measures to allay citizens' fears concerning their future]
  1. 1) Increasing the government's contribution in healthcare systems for senior citizens (from the current 50% to between 60% and 70%.)
  2. 2) Ensuring stable financial resources equivalent to 1/2 the portion of basic pension funded from tax revenues.
  3. 3) Reform of the childcare system, aimed at reducing the number of children on waiting lists for childcare facilities (mainly by increasing government's contribution.)
  4. 4) Reinforcing the safety net for contingent workforce (reviewing the range of application of social insurance, securing opportunities for skill and vocational training, etc.)

(3) Tax system

The Japanese tax system -- excessive dependence on corporate tax that is the highest in the world and vulnerable to changes in the economic climate, income tax with significant taxation base erosion, and lower rate of consumption tax -- does not function adequately to support the fiscal system in a stable manner. There is an urgent need to undertake radical reforms in order to establish a well-balanced taxation on expenditure, income, and assets which can stand up to expenditure increases in the medium to long term such as social security benefits.

[Toward radical reforms]
  1. 1) Raising the consumption tax rate at an early stage, in a gradual manner. (Starting on fiscal 2011 till reaching at least 10%. (For instance, 2% each year.) To be increased to a rate equivalent to the European countries (above 15%) by the mid-2020s. When consumption tax exceed 10%, introduce refundable tax credits for medium and low-income earners, similar to the Canadian system.)
  2. 2) Enhancing the redistribution functions of income tax (review the respective types of deductions.)
  3. 3) Early reduction in effective corporate tax rate to 30%.
  4. 4) Early introduction of the identification number system used for social security and taxation in common.

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