Seven Consecutive Years of Cuts

The usual tools for stimulating the economy have always been tax cuts and increased public spending. Post-war Japanese economic policy has relentlessly pursued these two avenues. The thinking is that tax cuts would free up funds for consumption, and psychologically, they would foster a sense of optimism. This would lead to increased personal consumption, which accounts for about 60% of GDP and holds overwhelming weight, ultimately driving economic prosperity.

However, current policy is taking the exact opposite approach. Tax cuts are being rescinded and reversed, effectively amounting to tax hikes. Furthermore, a significant increase in the consumption tax looms, with its implementation within the next two to three years already a foregone conclusion.

It is only natural that the economy is not picking up. All of this is due to the enormous fiscal deficit, which totals approximately 800 trillion yen when national and local government debts are combined.

Public Works Bear the Brunt

The budget for public investment, another key economic stimulus measure, is also being reduced year after year due to the massive fiscal deficit.

For instance, the public works budget for fiscal year 2008 was approximately 6.04 trillion yen, a 2.1% decrease from the previous year. This marks the seventh consecutive year of cuts. Compared to its peak in fiscal year 1998, the budget has plummeted by a staggering 40%. And the outlook is bleak, with no prospect of increased public works projects. While I harbor no sympathy for the construction industry, small and medium-sized subcontractors are being forced into bankruptcy one after another.

Of course, issues such as bid-rigging and collusion with officials, which have plagued public works projects, continue to come to light. It is undeniable that public works face considerable criticism. However, simply reducing the budget is not the answer. There remain many public sectors where national and local governments must undertake the development of social infrastructure.

A Wave of Existing Infrastructure Renewal is Imminent

These include integrated facilities for roads, airports, and ports, as well as disaster prevention projects to prepare for earthquakes and floods. Crucially, we cannot overlook the importance of reinforcing, maintaining, and managing existing facilities. A vast amount of social capital built during the high-growth period, when the economy was expanding continuously, is now approaching its renewal phase. Repairs and reinforcement are essential for ensuring the safety and security of the public's daily lives, and this too falls under the purview of public works. Simply cutting the public works budget is not a viable solution. It is imperative that not only the industry but each of us individually takes an interest in promoting more efficient project execution.