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Abe goes on defensive as growth agenda hits bump

Prime minister takes heat on tax revenue setback

Prime Minister Shinzo Abe speaks with fellow lawmakers at the lower house budget committee session Thursday.

TOKYO -- Now in his fifth year as Japan's leader, Prime Minister Shinzo Abe has taken credit for presiding over gains in corporate earnings and tax revenue. But with tax income expected to miss this fiscal year's initial estimate, Abe's economic program faces a new challenge, especially as he flirts with redistribution.

Opposition lawmakers seized on this setback for Abenomics in the lower house budget committee Thursday, as debate began on a third supplementary spending package for the fiscal year ending March 31.

The Abe government has been forced to seek an increase in bond issuance to make up for the dip in tax receipts, the Democratic Party's Yuichiro Tamaki said, arguing that governments previously covered extra spending by borrowing only in response to natural disasters or economic shocks like the 2008 financial crisis.

"Why do we need to have a big supplementary budget when there has been no major shock?" Tamaki pressed Abe.

Abe countered that Japan's tax revenue had been rising "all this time" -- since his return to the prime minister's office in December 2012. This fiscal year's reversal owes to global economic conditions and a strong yen, he said.

Off target

Japan is unlikely to meet its goal of a primary budget surplus -- revenue in excess of spending other than interest payments -- in fiscal 2020, government projections presented Wednesday showed.

The primary deficit forecast for fiscal 2020 has widened to 8.3 trillion yen ($72.4 billion), Tamaki said, calling the Abe government's handling of fiscal policy "a mess" and questioning the wisdom of including additional defense spending in the supplementary budget.

A strong yen remains a risk to the Japanese economy, given U.S. President Donald Trump's fuming over an uncompetitive dollar. Abe insisted his government will continue to advance its growth strategy. But a prolonged decline in tax revenue would force a new reckoning with the problem of righting Japan's public finances.

Labor reform

Reforming how Japanese work, which Abe called the "greatest challenge" for his economic policy, represents one area where his government has shown an ear for opposition arguments. The social consequences of overwork, brought to the public's attention again by the suicide of a young Dentsu employee, have prompted a proposal to cap monthly overtime at somewhere between 60 and 80 hours. But it remains to be seen whether the government will propose legislation to this effect during the current parliamentary session.

The trade-union-backed Democratic Party wants to enact a limit on overtime during this session. Eighty hours is "too much" extra time to put in each month, Democrat Kensuke Onishi told the budget committee, noting that labor standards set this amount as a threshold leading to karoshi, or death by overwork.

But some in the business community worry the limit may prove too onerous. If the Abe government takes too long to flesh out the proposal into something workable, the prime minister's credibility as a reformer may suffer.

Sharing the wealth

Aware that Abenomics has been blamed for contributing to wealth inequality in Japan, the prime minister has shown interest in policies that seek to ensure the fruits of growth are evenly distributed.

Democrat Seiji Maehara, a former foreign minister and leader of an earlier version of the party, said Japan has not done enough to reduce relative poverty rates through redistribution. "We need to rethink the substance" of these policies, he told the committee.

Abe said his government has made an effort on benefits for working-age individuals and will continue to look for ways to provide support, such as tuition grants.

Ruling and opposition parties alike will confront the problem of paying for increased benefits. Maehara acknowledged the Abe government's plan to increase economic participation, introduced to much fanfare last year, but said it has become "pie in the sky" without funding.

"Increasing burdens [such as taxes] would be problematic at a time when we have yet to escape deflation," Abe said. Yet it is hard to see how the government can distribute more without such increases -- including a consumption tax hike that the prime minister has already postponed twice.


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