NUSA DUA, Indonesia: Japan has emerged from the “crossroads” of economic stagnation, with deep reforms and a massive spending package expected to put it back on the growth track, Prime Minister Shinzo Abe said on Monday.
Speaking to Asia’s top corporate executives at a summit, Abe said that through his three-pronged strategy to revive the Japanese economy, he has succeeded in “breaking through the mentality of economic stagnation that had been permeating Japan.”
The Japanese leader singled out his move to raise the consumption tax rate from 5 percent to 8 percent with effect from April 1 next year. The increase is seen as crucial to shrinking the country’s huge national debt and marks a major political gamble for Abe, with previous tax rises having led to the downfall of his predecessors.
Abe has also unveiled a 5-trillion yen ($50 billion) spending package aimed at softening the blow from the tax increases.
“I now feel very intensely that we have emerged from this crossroads onto a path that runs straight out before us,” he said in a speech to the Chief Executive Officer Summit, a meeting of big business held in parallel with the annual summit of Pacific Rim leaders on the Indonesian island of Bali.
“It is my belief that it is possible to revive the economy and restore the soundness of public finances in a compatible way,” he said.
“There is no other path forward,” Abe added.
Japan is wrestling with the developed world’s heaviest debt burden, inflated by years of ineffective efforts to stimulate the economy through spending and soaring welfare costs in a rapidly ageing society. But Abe, after becoming prime minister in December 2012, has embarked on an audacious quest to haul out the economy from the doldrums, through a strategy involving huge government spending, easier monetary policy and structural reforms dubbed by the media as “Abenomics.”
In his speech, Abe described the huge stimulus package as an “investment toward the future” and will not be a “series of transient measures.”
He said that the money will be used to encourage companies to retool old business models and become more innovative.
“We will utilize the tax system as the lever to facilitate this, boldly using taxes as incentives in order to encourage innovation in Japanese companies,” he said.
“We will reinforce our growth potential by replacing old industries with new,” Abe added.
He vowed that his government will “forge ahead with regulatory reform in the fields of electric power, agriculture and medicine to create new services and new industries” that will power the economy forward. “I will move swiftly into implementation, since the credibility of my economic package will hinge entirely upon my government’s ability to execute these plans,” he pledged.
But he made no mention of reforms to the country’s labor market, a day after conceding in an interview to the Financial Times that attempting to remove stringent job protections—a step that could make Japanese companies more attractive for foreign investment—may prove difficult.