Remarks by Angel Gurría
Tokyo, Japan - 13 April 2018
(As prepared for delivery)
Ladies and Gentlemen,
It is always a great pleasure to be back in Tokyo. My visits to Japan each April reflect the importance of Japan in the OECD and in the global economy. Japan has been a strong supporter of increased openness, playing a key role in the successful negotiations for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, also known as the TPP-11. With Japan assuming the presidency of the G20 in 2019, we are beginning discussions with Japan’s leaders on important initiatives to strengthen the world economy. I look forward to even closer co-operation between Japan and the OECD as we prepare for the G20.
This visit provides opportunities for bilateral meetings with the Prime Minister and other ministers and senior officials. In addition, I am here to launch our new Better Policies Series report on Japan, on which I will focus my remarks today. I would like to thank the Japanese government for its active support in the preparation of this report.
In the OECD’s Interim Economic Outlook announced last month, we projected that the world economy will continue to strengthen, with global GDP growth expected to rise to about 4% in 2018 and 2019. Stronger investment, the rebound in global trade and higher employment are helping to make the recovery increasingly broad-based.
Japan is contributing to this global rebound. After two decades of weak growth, per capita income growth since 2013 has accelerated to 1.4% per year, a rate nearly in line with the OECD average. Nevertheless, Japan’s per capita income remains about 20% below the top half of OECD countries.
Achieving sustainable and inclusive growth is a top priority. This requires addressing a number of major challenges.
Despite recent improvements, GDP per hour-worked is only 74% of the average of the top half of OECD countries, although it is partially offset by high employment rates and long working hours.
Japan’s population is also shrinking and ageing very rapidly, making it difficult for Japan to catch up with leading OECD countries in terms of per-capita income. The total population is projected to decline by almost a quarter between 2015 and 2050, falling below 100 million. Meanwhile, the elderly population will rise from 44% of the working-age population to 73% at mid-century, remaining the highest in the OECD.
Furthermore, weak growth and population ageing have contributed to high public debt. Twenty-five consecutive years of budget deficits, combined with a prolonged period of deflation, have raised gross government debt from around 70% of GDP in 1993 to nearly 220% in 2015. This is the highest ever recorded in the OECD.
I will now briefly address each of these three challenges.
The government recently launched the New Economic Policy Package, which aims to double labour productivity growth to 2.0% per year by 2020. The Package has a number of measures to boost innovation, including financial support for investment in ICT by SMEs and tax incentives for investment increases. In addition, Japan is creating “regulatory sandboxes” to promote the development of new industries.
Japan has exceptionally high levels of human capital and a skilled labour force, which, together with high R&D intensity, has made it a world leader in technology. Raising productivity requires better leveraging these important strengths. Enhancing co-operation between industry and academia and strengthening Japan’s integration in international research networks would increase the return from R&D.
In addition, digitalisation of the economy, a key priority for the OECD, should be placed at the heart of raising productivity. Japan is taking important steps to fully reap the benefits of the digital transformation. In particular, the 5th Science and Technology Basic Plan, which covers FY 2016-21, has established a vision in which the systematic digital technologies spurs economic growth and provides solutions to societal challenges.
Strengthening Japan’s integration in the global economy would also boost productivity. Achieving the 2013 goal of doubling inflows of foreign direct investment by 2020 and continued measures to enhance openness to trade, building on the TPP-11, are priorities in this regard.
Education is also a challenge, despite the high performance of Japanese schools. Schools need to prepare students for jobs that have not yet been created, technologies that have not yet been invented and problems that have not yet been anticipated.
Revitalising growth against the backdrop of an ageing population requires Japan to better use its existing pool of talent.
The employment rate of women is 16 percentage points below that of men in Japan. There are also persistent gender gaps in terms of job quality, although Japanese women are very well educated. They account for only 12% of management positions, the second lowest in the OECD area.
Policies that make it easier for both men and women to combine work and family life would help address this problem. The government should promote the take-up of parental leave and further expand affordable access to quality early childhood education and care.
In addition, it needs to work together with the social partners to make workplace conditions more conducive to work and family life by curtailing the culture of long working hours.
Finally, the employment opportunities for older people need to be improved, notably by further increasing the retirement age. Greater use of foreign workers should also be part of the strategy to mitigate demographic trends.
The government is developing a new fiscal plan. It is critical that the plan provide a detailed and concrete consolidation strategy to maintain confidence in the fiscal situation. This requires specific measures to gradually raise revenues and control spending. Measures to raise revenues should rely primarily on taxes that are less distortive, notably the consumption tax and environmentally-related taxes.
Higher revenues need to be accompanied by measures to contain social spending, which is driven by population ageing. This requires further efforts to reform the health and long-term care systems, while carefully monitoring the impact on equity, and raising the pension eligibility age.
Ladies and Gentlemen,
Japan has already taken some bold and determined steps in recent years to tackle its economic, social and environmental challenges. But broad-based reforms need to continue. The complementarity between reforms makes a compelling case for a comprehensive rather than a piecemeal approach.
The OECD stands ready to help the government to design, develop and deliver better policies for better lives in Japan.