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The Japanese economy is recovering after having suffered severe shocks from the 2008 financial and economic crisis and the 2011 Great East Japan Earthquake. It is facing a significant fiscal consolidation challenge in a context of rapid population ageing. Reform priorities include boosting competition in service sectors, bringing more women into employment and reducing duality in the labour market between regular and non-regular workers.
Previous Going for Growth recommendations include:
- Ease barriers to entry for domestic and foreign firms in the services sectors notably by reducing restrictions on inward FDI and services imports.
- Promote higher female labour force participation by increasing the provision of affordable high quality childcare and reducing fiscal disincentives for return to work.
- Reform job protection for regular workers while expanding the social security coverage and upgrading training programmes for non-regular workers.
- Shift the tax burden from direct to indirect taxes by implementing the rise in consumption tax as planned, while broadening the income tax base and further the reducing corporate tax rate.
- Reduce producer support to agriculture by scaling back agricultural protection and shifting from price support to direct support for farmers.
Actions taken: Notable reforms in these areas over the past two years include:
- The participation in the Trans-Pacific Partnership negotiations and engagement in trade agreements with the European Unions are likely to help promote competition in less exposed sectors.
- The consumption tax is to be hiked to 8% from April 2014.
- The government has set a goal of eliminating waiting lists at public childcare centres at 2017.
- An extension of public pensions to non-regular workers was legislated in 2012, coming into effect in 2016.
The report also discusses the possible impact of structural reforms on other policy objectives (fiscal consolidation, rebalancing the current account and reducing income inequality). In the case of Japan, expanding the provision of childcare and social security may put further pressures on the budget deficit, at least in the short run, but may also help reducing income inequality between genders and between regular and non-regular workers.