JAPAN: Full Focus on Shrinking And Ageing Population

Ageing Japan must persevere on fiscal reform-panel TOKYO, Japan (Reuters), November 26, 2007: Japan's top economic council will stress that the government needs to press on with fiscal consolidation efforts in light of the shrinking and ageing of the population, the Cabinet Office said on Monday. In an annual policy paper on budget for the fiscal year from next April, the council will call on the government to maintain plans to curb rises in social security payouts and cut public works spending by 3 percent. "The state of the country's public finances is extremely severe and it is apparent that future generations will be forced to bear a bigger burden as the population further shrinks and ages," said a draft of the paper released by Cabinet Office, which moderates the panel. The paper comes at a time when lawmakers in the ruling coalition are stepping up pressure on the government to increase public spending to win voters' support after the parties took a drubbing in an upper house election in July. The panel, called the Council on Economic and Fiscal Policy, aims to finalise its policy paper shortly as the Ministry of Finance wants to compile next fiscal year's budget by the end of December. The draft also said the government should strive for "fundamental reforms in the tax system, including the consumption tax" to secure a stable source of revenue to cover growing costs of social security and the falling birthrate. The government needs fresh revenue sources to finance a planned increase in its share of pension contributions to 50 percent from the current 37 percent by fiscal 2009/10. Many analysts have said a rise in the sales tax would be the most likely scenario. But key ruling party officials, including Prime Minister Yasuo Fukuda, have recently suggested the government would not raise the consumption tax next year. The draft also calls on the government to reduce new issuance of debt "as much as possible". Japan has compiled austere state budgets in the past few years to rein in huge state debt, which is expected to reach around 773 trillion yen ($7,127 billion) at the end of this fiscal year, equivalent to nearly 150 percent of the nation's gross domestic product. The Ministry of Finance has received budget requests totalling 88.92 trillion yen from ministries for next fiscal year, up 7 percent on spending this year, although the ministry will trim the figure before the budget goes to the cabinet. The government aims to achieve a balanced budget, excluding debt issuing and servicing, by fiscal 2011/12 through both spending cuts and increases in revenues. Reporting by Yuzo Saeki Editing by Michael Watson © Reuters 2006.