Japan’s Abe Once Again Puts Off Difficult Reform

This time, it’s slow growth in China that supposedly justifies delaying an increase in the sales tax.

Prime Ministers Matteo Renzi of Italy and Shinzō Abe of Japan attend a ceremony in Tokyo, August 3, 2015
Prime Ministers Matteo Renzi of Italy and Shinzō Abe of Japan attend a ceremony in Tokyo, August 3, 2015 (Palazzo Chigi)

Japanese prime minister Shinzō Abe once again backed away from reform on Wednesday when he delayed a planned sales tax increase that was meant to shrink a huge deficit.

At this point, it seems we would be deluding ourselves if we still take “Abenomics” seriously as a program of economic reform.

When he returned to power in 2012, Abe promised to tackle sclerotic growth in three ways: short-term monetary and fiscal stimulus, long-term fiscal consolidation and structural economic reform.

He only managed the first and has constantly found excuses to put off the second and third — which are the more important if Japan is to find its way back to growth.


This time, it’s slow growth in neighboring China and other emerging markets that Abe said necessitated a change in plans.

“Abenomics has been steadily producing results, but the global economic environment has changed unexpectedly quickly in the past year,” he said.

There is something to be said for postponing the sales tax increase from 8 to 10 percent. A previous rise from 5 percent pushed the economy into recession.

But within the context of Abe’s other broken promises, it seems less prudent than calculated.

Abe has a tendency to backtrack on controversial reforms whenever elections are looming.

The last time he canceled a tax increase was in November 2014, at the same time he called snap elections to refresh his mandate.

Next month, voters are due to elect half the members of the upper chamber of parliament. Abe’s Liberal Democrats currently have a majority in coalition with the conservative Komeito party.


Abe maintained on Wednesday that he has not abandoned his pledge to bring the budget into surplus by 2020, nor to rein in the national debt, which is more than double Japan’s annual economic output.

However, even if the government’s rosy forecast of 2 percent annual growth over the next few years pan outs, Abe’s fiscal targets look elusive.

So does the prospect for more structural reform.

Few economists disagree about what Japan needs to do to unlock growth. Powerful agricultural cooperatives and high subsidies that shield farmers from competition must be broken up. Rigid labor laws that make it nearly impossible to lay off workers should be relaxed.

Many firms limit hiring to part-time or temporary workers, who are typically paid a third less than full-time employees. 57 percent of Japanese women hold such jobs and 70 percent of them quit when they have children.

Productivity is lagging. Firms are understandably reluctant to invest much in workers who are hired on a temporary basis while those with a secure contract have little incentive to keep up.

As a result, Japan’s GDP per hour worked is a quarter below the average for rich countries. Little of what Abe’s government has done is improving that.

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