TOKYO – The Greek fiscal crisis has sent shockwaves through markets around the world. In just two years, Greece’s budget deficit jumped from 4% of GDP to 13%. Now other European Union countries seem under threat, and the EU and the International Monetary Fund are grappling to stem the crisis before another nation trembles.
But the problem of excessive government debt is not confined to the EU. Indeed, Japan’s debt-to-GDP ratio is around 170% – much higher than in Greece, where the figure stands at around 110%. But, despite the grim parallel, Japan’s government does not seem to think that it needs to take the problem seriously.
Last year’s general election brought regime change to Japan. Yukio Hatoyama’s Democratic Party of Japan (DPJ) thrashed the Liberal Democratic Party, which had governed almost continuously for a half-century. But Hatoyama’s government has ignored macroeconomic management by abolishing the policy board charged with discussing economic and fiscal policy.
Instead, the government has focused on increasing spending to meet its grand electoral promises, including a huge amount for new grants to households and farmers. As a result, the ratio of tax revenue to total spending this fiscal year has fallen below 50% for the first time in Japan’s postwar history. If the government continues on this path, many expect next year’s budget deficit to widen further.