(Japan Federation of Economic Organizations)
Sub-Committee on Economic Analysis of
the Committee on Economic Research
To accomplish this, the government should map out a current surplus reduction plan that takes steps to create an economic structure in which internal and external demands are balanced; announce its determination, at home and abroad, to realize an economic growth rate of 3%; and implement programs which can achieve these goals.
To this end, Keidanren adopted a resolution at its General Meeting, and call to the government to prepare a current surplus reduction plan. The Sub-Committee on Economic Analysis of Keidanren's Committee on Economic Research, then followed up by compiling a report on the initiatives the government should include in developing the Plan.
The report first reviews the basic philosophy behind the request for the Plan, then lists the concrete targets and measures that should be included, and finally, presents an analysis of the expected results.
It goes without saying that the targets noted are merely goals that Japan will try to reach, but may not actually attain, since the current balance is affected by many external factors over which the government has no control, such as global business conditions and the exchange rate, as well as by other domestic economic factors.
With Japan moving towards the full-scale aging of its population in the 21st century, it is critical that we use the accumulation of personal savings as capital to improve the social infrastructure, while people still have sufficient savings. The economic model was assumed in which the Basic Plan for Public Program was front-loaded for three years, beginning in the current fiscal year, at an annual increase rate of 6%. An analysis of the results shows that as of FY 1997, real GDP would increase by 0.8% more than in the standard case (nominal GDP would increase by 0.9% more), while the current surplus would decrease by 9.9%. Thus the ratio of the current surplus to nominal GDP would decrease by 0.21%.
If the government were to significantly improve the information communications, R&D and transportation distribution infrastructures, private sector investment would be stimulated and progress would be made in reforming Japan's economic structure. This, in turn, would lead to the expectation that the structural surplus attributed to high savings and insufficient investment rates, would also decrease.
Revitalization of the Japanese economy is being obstructed by the tax burden that corporations must bear, which is extremely heavy by international standards, as well as by the burden that land owners must shoulder.
The economic model assumed for the Plan is one in which the effective corporation tax rate was set at about 40%, as in the US, instead of the approximately 50% rate, in Japan today. An analysis of the results showed that because of the internal demand centering on investments in private plant and equipment (Non-resi. Investment), in FY 1997 the real GDP would increase 0.4% more than in the standard case (nominal GDP would increase 0.4% more) and the ratio of the current surplus to nominal GDP would decreased by 0.15%.
Under current economic conditions, stagnation of Japan's internal demand is a major cause of the external imbalance. What is needed to correct this situation is an increase in private consumption that will open the way for import expansion and an improved savings/investment balance.
An economic model was assumed in the Plan in which the present special income tax reduction of 2 trillion yen would be continued into FY 1997. An analysis of the effects showed that domestic demand centering on personal consumption would revive and that, as of FY 1997, real GDP would increase 0.2% more than in the standard case (nominal GDP would increase by 0.2% more) and reduce the ratio of the current surplus to nominal GDP 0.06%.
In order to achieve the changes in Japan's trade structure necessary for international harmony, increased access to the Japanese market will hopefully be facilitated by removing import barriers and instituting new measures to assist foreign firms in exporting to Japan.
Repealing and relaxing regulations is an important component in effecting Japan's conversion from an export-oriented economy to one in which there is a balance between internal and external demands. As the report of The Advisory Group for Economic Structural Reform (The Hiraiwa Report) pointed out, deregulation should be carried out aggressively. It is necessary now for the government to advance the timetable of The Deregulation Action Program and make it more substantial.
Deregulation will lead to the creation of new businesses, open new investment frontiers and rectify domestic/overseas price disparities. It is expected to contribute to the improvement of the structural saving/investment balance by increasing private sector investment.
In addition to advocating that the government take immediate action on these issues, the private sector must concurrently make efforts to reduce the current surplus, including reforming corporate policies for promoting technology transfer abroad, reforming commercial practices to facilitate imports and recycling the benefits of the yen's appreciation.