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Japanese leader's ambitious plan to revive competitiveness, growth through labour, tax reforms

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TOKYO - Prime Minister Shinzo Abe announced a slew of measures Tuesday aimed at restoring Japan's global competitiveness. Past governments have sought and failed to enact many of the reforms Abe and other leaders say are needed to revamp an outdated post-World War II industrial model and sustain growth for decades to come.

Resource-scarce Japan needs exports and other overseas earnings to pay for imports of fuel and food to feed its 127 million people. While Toyota Motor Corp. is the No. 1 automaker, other big icons of Japan Inc., like Sony Corp., are losing out to rivals like Korea's Samsung Electronics Co.

But rather than a sweeping overhaul, the 230-point plan — dubbed the "third arrow" that Abe promised along with his first two arrows of monetary and fiscal stimulus — is an exhaustive list of potential regulatory changes that must overcome deep-rooted resistance from vested interests to succeed.

Below are the basics of the reform plan:


Labour: Japan's workforce is shrinking and aging. Abe is promising more childcare to enable more women to work while raising families. He wants to expand programs for migrant worker "trainees" to fill labour shortages in areas such as nursing, elder care and construction and encourage more widespread use of robots. But there is strong resistance to letting more foreigners settle in Japan. Labor is strongly opposed to a proposal to end overtime pay for top white collar workers — a measure critics say might lead companies to force even longer hours on their already overworked employees.

INVESTMENT: Abe wants Japanese corporations to invest more and create more jobs, helping to support growth by creating demand and raising wages. To entice companies to spend a larger share of cash hoards that total some 222 trillion yen ($2.2 trillion), he is promising to cut corporate taxes to below 30 per cent from the current rate of over 35 per cent, while pushing for stronger governance rules. Since the small and medium-sized companies that employ seven in 10 of all Japanese tend not to pay corporate tax, it is unclear if that will encourage investment or improve profitability for companies struggling to compete. The goal is to restore total capital investment to the 70 trillion yen level it hit in 2007, by 2015.

INNOVATION: Support for research and development could drive growth of cutting-edge medical and biotechnology industries, while Abe has also promised to dismantle many barriers to entrepreneurship. However, the urge to innovate and start up new businesses faces invisible barriers embedded in an educational, employment, social and financial system that strongly discourages risk taking.

GLOBALIZATION: Through the Trans-Pacific Partnership, a U.S.-led trade pact, Abe hopes to boost access to fast-growing markets in Asia and attract more foreign investment in Japan. He is traversing the globe peddling Japanese technology and infrastructure projects and championing a "Cool Japan" program to help sell Japanese "anime" and other unique cultural assets to the rest of the world, and to triple the number of foreign visitors each year to over 30 million.

AGRICULTURE: The politically powerful farm lobby is resisting efforts to dismantle the JA agricultural co-operatives empire. Abe hopes to rezone farmland and shift toward more commercial, large scale farming from the current house-hold based system. One benchmark is a goal to double food exports to 1 trillion yen by 2020.

MEDICINE: Changes to health insurance rules could allow use of more types of treatment, but are strongly opposed by the medical lobby.

ENERGY: Deregulation of Japan's electricity sector was decided on before Abe took office, but it is expected to spur more investment in renewable energy, though the government insists that Japan must restart its idled nuclear plants, once they pass tightened safety checks, to help trim costs for imported gas and oil. No big changes in this area.

PAYING FOR IT ALL: Japan's gross public debt amounts to more than 240 per cent of the GDP, compared with 72 per cent for the U.S. After pumping trillions of dollars into the economy through public works spending and ultra-loose monetary policy, the Ministry of Finance needs to bring things back into balance. The sales tax was raised to 8 per cent from 5 per cent in April and is due to hit 10 per cent next year. Japan needs higher tax revenues and is cutting pensions, welfare and health insurance, to counter soaring costs. A plan to revamp the investment strategies of the 130 trillion yen Government Pension Investment Fund may raise returns, helping pay for railways, gas pipelines and electricity grids, and attract more investment in stocks and other financial markets.

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