Japan's policies for tackling its economic woes amount to a band-aid, the main opposition party's policy chief said on Wednesday, arguing reallocating public resources could revive the economy without costing more.
With the global financial crisis sending the economy deeper into recession, Prime Minister Taro Aso's support has dwindled to near 20 percent, boosting the Democratic Party's hopes of taking power for the first time at an election due by September.
"The economy is bleeding and the government is doing nothing more than applying a band-aid," Masayuki Naoshima of the Democratic Party, said in an interview with Reuters.
"If we want to restore the Japanese economy to health, we must rebuild it," he added. "I do think we need the sticking plaster. But we also need to increase domestic demand and rebuild people's ability to make a living in a sustainable way."
Faced with dismal economic data, disgruntled voters and the threat of a long recession, Aso has called for an emergency spending package, which one newspaper said could total $216 billion over 3 years, or around 3.6 percent of annual gross domestic product.
But some analysts doubt the effectiveness of such a spending spree, saying it could crowd out private investment, strain Japan's dire public finances and fail to boost consumption if people choose to save rather than spend.
In particular, Naoshima dismissed as pointless a plan to hand out about $120 each to individuals, which has also met with little enthusiasm from the public.
Hoping to capitalise on growing dissatisfaction with the ruling Liberal Democratic Party (LDP), the Democrats are pushing policies they think will chime with cash-strapped voters, such as child allowances, gasoline tax cuts, and removal of highway tolls.
Naoshima said these could be funded by tapping reserves and eliminating waste.
"We won't spend a lot of money," he said. "The finance for this will come from what we see as wasteful expenditure. About 12 trillion yen ($130 billion) a year is spent on bodies that provide jobs for former bureaucrats. If we cut even half of this, not all, we will have enough to cover the child allowance."
TAPPING RESERVES
Democratic Party leader Ichiro Ozawa in September put forward a four-year economic plan that would be funded by up to 20.5 trillion yen ($222 billion) from reserves and cutbacks, an idea dismissed by critics, who say reserves would quickly dry up.
But Naoshima said the reserves would be a stop-gap providing time for an overhaul of the entire budget to strip out redundant layers of bureaucracy and perks for former officials.
"It would be a revolution. It's like putting out a new model of car," the former motor industry union official said. "The LDP want to keep the same model with a few tweaks."
With its national debt about 1.5 times GDP, the highest in the industrialised world, and debt serving costs forecast to take up a quarter of annual spending next year, Japan must also face up to fiscal reform in the mid to long term, Naoshima said.
He ruled out trying to increase revenues by raising consumption tax for the time being, but conceded such an unpopular hike may eventually become necessary to fund ballooning social security costs.
If the Democrats win power, Naoshima says they face a time-consuming task in taking over from a party that has been in government almost continuously since the 1950s.
"It will take time. What we want to do is put lawmakers into the bureaucracy," he said. "We will have them make the decisions, rather than the bureaucrats," he added, saying that 100 or more lawmakers could be deployed in this way.
Japan's economy contracted 0.5 percent in July-September, far more than initially estimated. As global demand slumps, the export-driven economy looks likely to keep shrinking at least until the first quarter of next year — which would mark four quarters of decline, the longest such contraction on record. ($1=92.38 Yen)
