The government has approved the 2008 "big-boned" policy guidelines submitted by the Council on Economic and Fiscal Policy. They will serve as the basis for budgetary negotiations for fiscal 2009. In step with the basic idea of the 2006 guidelines, which called for ¥11.4 trillion to ¥14.3 trillion spending cuts over the five years from fiscal 2007, the new guidelines call for the largest possible spending cuts. They also list policy measures ranging from creation of a low-carbon society to an increase in the quota for freshman medical students. But they fail to convey a strong message on how to end the country's economic and financial difficulties.
With revenue sources limited, ingenuity is required on the part of the government. The guidelines uphold the policy of reducing natural growth in social security spending by ¥220 billion each year from 2007 to fiscal 2011 as a symbol of the government's efforts to cut costs. But it appears that the council did not hold serious discussions on how to maintain and improve the social security system with the limited financial resources available.
In view of growing social security costs, the guidelines call for a comprehensive reform of the tax system, hinting at a possible increase in the consumption tax rate. The government plans to start using tax money to cover half of the basic portion of pensions in fiscal 2009, up from the current one-third. An estimated ¥2.3 trillion will be needed annually. On June 17, Prime Minister Yasuo Fukuda said that the time is nearing to make up his mind about raising the consumption tax. But on June 23, he said that he was thinking in longer terms, like two or three years. His opaque statements fail to stimulate meaningful discussions on the issue.