1

What should Japan
do to achieve fiscal consolidation?
January,2018＜ Team member＞
Rihito Ando (Bank of Yokohama)Kazuki Kuroiwa (Aflac)
Kohei Takamiya (Shoko Chukin Bank )Yasuhiro Tomita (Japan Housing Finance Agency)
Kazuya Manabe (Nikkei)
Yoshio Murahashi (Bank of Musashino)
Takayoshi Yanaka (Bank of Joyo)Japan Center for Economic ResearchA2

Table of contents

TabTale of contents

1.Japan is in danger, three ways to survive⇒To increase revenues, cut expenditures and boost growth rate are needed.
2.Review tax revenue composition⇒ It is necessary to raise the consumption tax considering that Japan has lower tax rate
than other countries.
3.Make Tax Collection fair
⇒Making Tax Collection Fair will help increase tax income.
4.Enlarging the number of Tax Payer rolls⇒Enlarging the number of tax payers is necessary through expanding immigrationand increasing the birthrate.
5.Maintenance and repair expenses of infrastructure will be bigger.
⇒ It is important to identify the infrastructure that is really needed in the future.
6.Adjustment of the Japanese pension system⇒ Push pension benefits lower even under the economic growth path.
7.Reduction of medical care expenses is an urgent issue.
⇒Policies are needed to control medical costs and nursing care expenses.
8.Conclusion.
⇒ Our solutions will give Japan to gain its strength back.

3(Kazuya Manabe)【Introduction】

Japan in danger, three ways to survive
4.0【Figure 1: Japanese fiscal condition】【Figure2: Three ways to improve condition】

250

40
2.0

200

0.0

150

-2.0100(％ of GDP）

(yoy％）

6.0

②Down
35

3.0

①Up

③Up30

-4.0

0.0

50
Expenditure25-6.0

net borrowing

Revenue0General government gross debt (％ of GDP, 2016, right axis)
General government net lending/borrowing(％ of GDP, 2016)
GDP growth (yoy％,2012-16 average)(※) Japanese general government gross debt and net borrowing areestimation by IMF(Source) IMF "World Economic Outlook Database, October 2017"-3.0

GDP growth(right axis)

20(Year)
2000

0204

06

08

1012141618(※) As of 2016, Revenue and expenditure are estimation by IMF(Source) IMF "World Economic Outlook Database, October 2017"20-6.0(Takayoshi Yanaka)【2.In Order To Increase Tax Revenue:#1】

Review tax revenue composition

100【Figure3. International Comparison of Tax Revenue Components】

(%)

9080
7060
50403020100Japan

United StatesU.K
Germany
Personalincometax
Corporateincometax(Sorce,Ministry of Finance)

Swedenconsumption tax

FranceProperty taxation etc.

【 Figure4. Lifetime net beneficiaries by generation】（Per household,Ten thousand yen）
20000
Total benefit
Total burden
15000

Lifetime net beneficiary (line)

10000
4875

5000

1598

0-5000

-1660

-1202

-28-4585-10000-15000-20000Future generations

Born in 1974-83

Between 1964 and 73 Between 1954 and 63 Between 1944 and 53

Source: Cabinet Office Annual report on the Japanese Economy and Public Finance Fiscal Year 2005"

Prior to 19434

(Rihito Ando)【3.In Order To Increase Tax Revenue:#2】

Make Tax Collection fair
【Figure5-1 Number of people classified by income level】(million people)
1.4
1.2

salaried employee
business income earnertaxable income

1.070

(％)

60

0.8

500.6

400.4

【Figure5-2Tax Free people ratio】

300.2

200.0

100(Souce) the National Tax Agency Japan(million yen)salariedemployee

businessincome earner【Figure6. The gap between actul and real taxable income】

Actual taxable
income8.8 trillion yen
4.0 trillion yen

Real taxable
income12.8 trillion yen(Souce) JRI Review

・There is unfairness between
salaried employees and businessincome earners in tax collection.
・To make this situation fair andproportionate will improve tax
revenue.

5

(Kohei Takamiya)【4.In Order To Increase Tax Revenue:#3】

LONG TERM :Enlarging Tax Payer Rollｓ
Receiving more immigrants【Figure7 The foreign-born percentage of the total population in OECD countries】(%)

5020152000

403020100(Source)OECD2.5(%)

Improving birthrate【Figure8-1 Birthrate in developed countries】(As of 2015)

25000

2200001.515000

1100000.5030000【 Figure8-2 Children not enrolled in nursery schools】※ despite parents' desire(number of people)

5000
0
Jap anUnitedStates(Source)Cabinet office

Fra nce

Germa ny

Italy

SwedenUnitedKingd om

2014

(Source)Mhlw

What should Japan do to achieve fiscal consolidation

2015

2016

2017 (Year)6【5.In Order To Increase Tax Revenue:#4】

7(Yoshio Murahashi)

Maintenance and repair expenses of infrastructure will be bigger.
【Figure9 Transition of public works expenses】(Trillion yen)
14

Maintenance and repair expenses of social capital will be bigger.
Initial budget

12

Supplementary budget

108642000

010203

04

05

06

0708

09

101112131415(Source：Ministry of Economy, Trade and Industry)(Trillion yen)
35
30
25
20
15
10
5003

1617(Year)【Figure10 Completed construction amount of public works】

0405060708

09

10

Maintenance and repair work
New construction work
Percentage of maintenance and repair work of public works(Right scale)（Source:Ministry of Land, Infrastructure and Transport）

1112(％)
35302520151050131415（Year）

【6.In Order To Decrease Expenditure:#2】(Yasuhiro Tomita)

Adjustment systems in Japanese pension system【Figure11】

Wageincrease(CPIinflation)ratemacroeconomic adjustment rate(▲0.3%)
Original pension revision rate
The revision rate of pension benefits will
be cut from wage increase (CPI inflation)
rate after macroeconomic adjustment.

It is desirable to have a mechanism that can reduce benefits
little by little regardless of economic situation.

【Figure12】

Pension benefits①
Wage and price increase(booming economy)
Original revision
Actual revision②

Wage and price decrease(recession)

Time
now
①：Fiscal deterioration due to postponement of adjustment, and recover the past fiscal deterioration②：Regardless of economic situation, pension benefits should be kept low
until stability of pension receipt for future generations is secured.

8【7.In Order To Decrease Expenditure:#3】(Kazuki Kuroiwa)

9Reduction of medical and care nursing expenses is an urgent issue.
【Figure13】

prediction【Figure14-1】【Figure14-2】

【8.Conclusion】

10Conclusion Recommendations for fiscal rebuilding Japan's fiscal problem is in a crisis situation. For reform, we will makethree recommendations from the revenue side and the expenditure side
respectively.

 On the revenue side, in the short term, you should follow tax revenue

composition based on consumption tax, and make tax collection morefair. In the long term, it is necessary to increase taxpayer rolls byexpanding immigration and improving the birthrate.

 Onthe expenditure side, it is necessary to select the necessary
infrastructure investments, strict operation of the pension systemcoordination system and suppression of medical expenses and nursing
care expenses.

11Team]]]

Rihito Ando (Yokohama Bank)
Kazuki Kuroiwa (Aflac)
Kohei Takamiya (Shoko Chukin Bank)
Yasuhiro Tomita (Japan Housing Finance Agency)
Kazuya Manabe (Nikkei)
Yoshio Murahashi (Musashino Bank)
Takayoshi Yanaka (Joyo Bank)