shrinking population

Japan Cabinet Oks Blueprint for Spending Cuts

August 8, 2013 by NewsMaker

Prime Minister Shinzo Abe has meanwhile deferred until later this year a decision on hiking Japan’s sales tax, which might help fortify public finances, but could do more harm than good if it derails the economic recovery nurtured by Abe’s government.

Japan’s public debt amounts to more than twice the size of its economy, which is the world’s third largest. Earlier this week, the International Monetary Fund reiterated its call for a “credible” fiscal plan to help bring it under control. Abe is expected to respond to that call at a summit of the Group of 20 major developed and emerging economies early next month.

The plan approved Thursday would slash social security spending and reduce public works costs by 10 percent. So far, Abe has focused on boosting spending to stimulate growth and fight deflation. Economists say the still-fragile recovery can be sustained only if the government tackles difficult reforms needed to improve Japan’s competitiveness and counter the impact of a fast-aging and shrinking population.

Abe’s ruling party controls both houses of parliament but it’s unclear whether the plan can win the approval of lawmakers without being significantly watered down. Cuts to benefits such as old age pensions are politically unpalatable for a fast-greying electorate.

Japan’s Finance Ministry and its central bank, which wrapped up a monthly policy meeting Thursday with no change in its extreme monetary easing policies, have pushed for stronger fiscal discipline, warning investors will lose confidence in the country’s financial health if the debt continues to grow.

Bank of Japan Gov. Haruhiko Kuroda said the central bank left unchanged its economic assessment that a moderate recovery is happening, but did see some signs of improvement from the month before.

Kuroda reiterated his support for going ahead with the sales tax hike, saying he expects the economic outlook to continue to strengthen. Original plans called for a 3 percentage point increase in the current tax to 8 percent next April, to be followed by another 2 point increase in 2015.

The fiscal blueprint, which is part of the budget process for fiscal 2014, would reduce the government’s deficit by 17 trillion yen ($176 billion), or half, over the next two years, to help curb the issuance of fresh government debt. A key element of that reduction would come through lower spending on social security, such as old-age pensions and welfare.

It comes as the government mulls spending hundreds of millions of dollars to contain radiation-contaminated water at a nuclear plant wrecked by the March 2011 tsunami.

Plans call for spending 30 billion to 40 billion yen ($300 million to $400 million) on efforts to solidify ground surrounding reactor buildings at the plant in Fukushima to prevent underground water from entering contaminated buildings. That would be in addition to an 8.7 billion yen ($90 milllion) budget this year for decommissioning projects including development of robots to locate and remove debris from melted reactors.

The nuclear disaster is one of several massive drains on national finances. Neglect of the country’s infrastructure has left many tunnels, dams and bridges in need of urgent repairs. Surging pension and health care costs for the growing elder population are among other pressing concerns.

So far, flooding the economy with cash appears to have helped support a recovery, with growth at 4.1 percent in the January-March quarter. Data for April-June, due for release Monday, are expected to show growth at about 3.5 percent.

But a Cabinet survey released Thursday showed that confidence among people with jobs sensitive to economic conditions, such as restaurant workers and taxi drivers, worsened for the fourth straight month in July. The government said extreme heat was partly to blame, as people stayed home rather than venturing out to eat and shop.

With the government already reining in spending to address fiscal concerns, and the sales tax hike due to dent consumer demand if it takes effect in April, future growth will depend on higher corporate investment and wages, Moody’s Investor’s Service said in a report. Otherwise, the government risks increasing debt without spurring enough growth to pay for it.

But a key adviser to Abe, economist Koichi Hamada, said Thursday that he was concerned the tax hike would cause too much of a setback.

“It would be a pretty big shock,” he told reporters.

Article source: http://www.nytimes.com/aponline/2013/08/08/world/asia/ap-as-japan-economy.html?partner=rss&emc=rss

Bing Sees Progress on Detroit’s Debt

“The picture is not all doom and gloom,” Mr. Bing said in his annual State of the City address. “Every day there is more hope and possibilities. Like many Detroiters, I, too, am a fighter. We can’t, and won’t, give up on our city.”

For years, Detroit has wrestled with financial problems, partly the result of a shrinking tax base caused by a shrinking population. But city officials say they have made a series of spending cuts in recent months — including furloughs and layoffs — aimed at avoiding an immediate cash shortfall. Less than 9,700 city workers remain on the job, more than a thousand fewer than were on the city’s payroll last June, saving about $50 million annually, the city says. And Mr. Bing’s administration says it has reduced spending to $1.1 billion in the 2013 fiscal year from $1.4 billion in 2009.

Whether that will be enough to satisfy state officials, who are awaiting a review of the city’s finances this month, is uncertain. Among the troubles for Detroit — once the nation’s fourth-largest city, now 18th — is its long-term debt, estimated in 2011 at more than $12 billion by state officials.

If the review of Detroit finds the city’s circumstances dire, state officials could soon appoint an emergency financial manager who would have relatively broad powers to remake the city’s budget. “The options — they aren’t pretty,” Mr. Bing, who has yet to say whether he will seek re-election this year, said in his address. “But the consequences are even less attractive.”

Detroit leaders have long said they would prefer to solve their city’s problems on their own, and the prospect of an outside manager is freighted with political tensions between state leaders, dominated by Republicans, and those in the city, most of whom are Democrats. Still, Gov. Rick Snyder has been considering a pool of possible candidates for the emergency manager job should that become necessary, his office said this week.

Around the country, states have used a variety of approaches — from appointed receivers to oversight boards — to step in when cities are running into severe financial trouble. A financial control board helped New York City regain its footing in the 1970s. Still, the role and authority of such bodies range widely, as do opinions about whether they ultimately work. And Detroit had already been overseen by a financial advisory board that includes state officials, under an agreement reached with the state last year as the city tried then to avoid an outside manager.

Under Michigan law, an outside manager could eventually help lead a financially troubled city into bankruptcy proceedings, an outcome that few in Detroit or Lansing, the capital, see as wise or likely but that some have come to talk about as a real consideration.

If Detroit were eventually to pursue a bankruptcy filing, it would be the most populous American city to do so, and it would amount to the nation’s largest municipal bankruptcy in terms of its size of debt. Bankruptcy filings, known as Chapter 9 for such entities, are rare, complicated, slow and expensive, experts say. States like Michigan have a say in whether a municipality can pursue bankruptcy in the first place, and they have plenty of reasons to avoid such an outcome.

Since the 1930s, 643 government entities — and mostly small taxing authorities rather than major cities — have filed for Chapter 9 bankruptcy, and James E. Spiotto, a municipal bankruptcy expert at Chapman Cutler, a law firm in Chicago, cautioned that such a move by Michigan’s largest city would create all sorts of troubles, in terms of uncertainty, stigma and economic development.

“Chapter 9 is not a solution, it’s a process,” Mr. Spiotto said. “And it’s one that is going to have ripple effects for surrounding communities and the rest of the state. It was always intended to be the last, last resort.”

Article source: http://www.nytimes.com/2013/02/14/us/bing-sees-progress-on-detroits-debt.html?partner=rss&emc=rss

Japan Cabinet Oks Blueprint for Spending Cuts

Bing Sees Progress on Detroit’s Debt

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