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THE PACIFIC RIM

Japan Urged to Help Its Consumers

March 20, 1987|SAM JAMESON | Times Staff Writer

TOKYO — A Japanese can buy a dollar for around 150 yen, but if he wants to buy the commodities that an American can buy with a dollar in the United States it will cost him 231 yen.

The income of the average Japanese household is the equivalent of about $26,700 a year--$3,000-plus a year more than the income of the average American household. But to find a home on an 1,800-square-foot lot, a Japanese family would have to look in the suburbs an hour from downtown Tokyo and pay about 100 million yen ($666,667).

To Bunpei Otsuki, chairman of the Japan Federation of Employers Assns., the high cost of living in Japan is the main reason that the economy grew by only 2.5% last year--the lowest increase in gross national product in 12 years. GNP should be growing by at least 5% a year, he told a recent Yomiuri International Economic Symposium.

Otsuki, who has just been named to head Prime Minister Yasuhiro Nakasone's Administration Reform Council, blamed government policies that allow exorbitant prices for food and public services to continue but fail to dampen surging land values.

Purchasing power reduced by the high cost of living, he complained, "has forced consumers into a defensive posture, away from consumption (and) toward savings." Even as he spoke, the Bank of Japan announced that personal savings in Japan last year increased 10.3% to 545.3 trillion yen ($3.6 trillion)--an average of $29,411 for every man, woman and child.

Government protection of agriculture from foreign imports and government regulation of public services, he said, have driven the cost of food, utilities, heating and services far above international levels.

Citing government statistics, he noted that food prices in Japan are 2.5 times higher than in the United States. Items protected by the government from foreign competition--rice, for example, costs 8.4 times what it does in the United States; beef costs 5.9 times what it does in Australia--are pegged "at levels that are inconceivable in common sense," Otsuki said.

But the pattern could be broken, he said. Easing protectionist policies on agriculture, and deregulation of services controlled by the government would help bring down the cost of living, he said.

And, by fulfilling "the extraordinarily great desire of the average Japanese for bigger homes," he said, a path toward growth built on domestic demand, not exports, could be opened up--a path the Reagan Administration has been urging Japan to take.

If Japan were to bring its housing up to West German standards, he said, it would cost about 200 trillion yen ($1.3 trillion). Tackling that job over a 20-year period, he said, would mean spending $66.7 billion a year on housing, a sum equal to 3% of the present GNP of $2.2 trillion.

Added to Japan's present level of economic growth, he said, the housing expenditure alone would push growth up to at least 5%. But, without fundamental reform of Japan's land and real estate tax policies, the housing expenditure would be mostly for land and would contribute little to growth, Otsuki said. More than 80% of the cost of housing goes for land, he said.

The government, Otsuki said, continues to allow almost 100,000 acres in the Tokyo metropolitan area to be used as farmland by assessing real estate taxes not on its potential value but on the estimated value of its potential agricultural production.

"If half of that land were used for roads, parks and other public facilities, the remaining half would be enough to provide homes with an average of 2,160 square feet of land for 4 million people to live in," Otsuki said.

The problem, he went on, is that "this kind of land is not being supplied for housing at all" because of the unrealistically low real estate taxes on it.

Moreover, he said, although the basic real estate tax rate in Japan is 1.4%, assessments have been held to a fraction of their real worth for the past 20 years, and the Japanese pay no more than a tenth of the basic real estate tax rate.

Thus the owner of a $666,667 home pays only about $900 in real estate taxes. If "proper" real estate taxes were assessed, Otsuki went on, most Japanese could not afford to live in such a home.

"There would be no buyers for such a home," he said. "And with no buyers, the price would have to come down." Therefore, he said, a proper level of real estate tax would restrain the rise of land prices.

A "great transformation in policy is necessary," he added.

"Japan has a choice of but two paths," he said. "One is to continue suffering a growth rate of only about 2% within the framework of the policies that have been followed to date. The other is to carry out a fundamental change of direction in policies to become an advanced nation in both name and reality by growing at a real rate of 5% a year."

Otsuki said the ability of the Japanese people to adapt to changing conditions makes him optimistic that change will come. Asked to predict when, he acknowledged that "many months and years" will be needed.

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