LEX Spend, spend, spend. Japan has taken up the global mantra with gusto: $120bn of fiscal stimulus, worth 2 per cent of gross domestic product, is now to be topped up again – although by an amount that is as yet unclear. Yet, as the rich world’s most indebted nation, Japan also faces the biggest challenge footing the bill – a salutary lesson for other big spenders. Pump priming in the 1990s has left Japan with a public debt burden nearing 180 per cent of GDP. That is more than twice the level in the US and the UK and well above Italy which, at 114 per cent of GDP, is the next biggest offender among developed nations.
Even without a weak economy, Japan’s numbers were due to get worse because of its ageing population. By 2050, there will be just 1.2 workers for every person aged 65 or above. More immediately, recession has dented the tax take, leaving the $470bn in revenues expected in 2008 20 per cent below the 1990 peak and well under 2007’s haul. That alone has trashed the target of balancing the central government budget by 2011. Add in debt service costs – which gobbled up one quarter of last year’s budget and will probably rise as spending does – then erase the expenditure cuts imagined in more pleasant times and the numbers turn even gorier. So far, the government plans to issue $1,350bn of bonds.
