With the aging society, a long-term perspective is essential in policymaking.
During the era of the economic miracle when the population increased, even if mistakes were made in setting policy over the short term, there was sufficient margin to enable a recovery from failure to allocating resources appropriately. However, during times of slow growth along with a declining population, errors in policymaking have a greater likelihood of turning out to be ruinous. A typical example may be found in the stringent state of Japan's fiscal situation today. Rapid increases in social security expenditures and persistent fiscal deficits are projected to balloon government debt to twice the level of GDP.
That is why we need a medium and long-term perspective in determining policy. One criterion is the "Economic and Fiscal Projections for Medium to Long-Term Analysis," through which the Cabinet Office periodically reveals its macroeconomic and fiscal forecasts. Currently, the Cabinet Office provides macroeconomic and fiscal projections through FY2023, but it has not released its provisional long-term calculations looking out 50 or so years into the future.
Quite a few other countries release their future long-term estimates of public finances. One notable case is the European Commission's fiscal sustainability reports. The Commission also compiles reports on the aging population once every three years and estimated the scale of social security expenditures through 2060. The Congressional Budget Office supplies estimates for the next 75 years and releases two kinds of scenarios: a baseline scenario that furnishes fiscal and macroeconomic projections assuming no change to the current system and an alternative scenario incorporating policy changes.
Since the first decade of the second millennium, discussions have taken place in other countries particularly in Europe about (1) preparing economic forecasts upon which budgets would be predicated, (2) medium- and long-term fiscal estimates, and (3) establishing "independent fiscal institutions" that will be responsible for policy assessments on fiscal policy, while giving them a certain degree of political independence. The Netherlands has the Netherlands Bureau for Economic Policy Analysis, and the United Kingdom has the Office for Budget Responsibility, both of which play such a role. This type of system also needs to be constructed in Japan in the future.
* Translated by RIETI.
October 29, 2015 Nihon Keizai Shimbun
