By Stanley White and Minami Funakoshi
TOKYO (Reuters) - Japan's government will set out a new growth strategy on Thursday that has already disappointed many economists for lacking the bold structural reforms needed to narrow income disparity and reverse rapid population decline.
Aggressive structural reforms are essential to pulling Japan out of decades of malaise, but economists say the flaws in Abe's piecemeal approach are evident in the lack of progress after more than three years of "Abenomics", the name give to his radical mix of monetary and fiscal stimulus and structural reforms.
Abe's delay of a sales tax hike due to weak consumption and the Bank of Japan's failure to slay deflation expectations despite resorting to negative interest rates show policymakers are running out of tools to fix an economy that will face even deeper problems of low growth and high debt as the population ages.
"There are many granular policies that lack concreteness, though the general direction of these policies isn't wrong," said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance.
"Japan's biggest problem is the ageing and shrinking of its population and the supply-side weakening that follows from it."
Abe shifted his economic agenda this year to focus more on the redistribution of wealth and improving access to day care, partly to prepare for an upper house election next month.
Many economists said this shift was an admission that despite Abe having had more than three years in office many low-income households have failed to benefit from his attempt to reflate a listless economy.
Abe's growth strategy will raise pay for child care workers, raise the minimum wage and improve access to elderly care, but economists say the reforms do not go far enough to change Japan's two-tier labour market.
The growth strategy, to be approved by the cabinet on Thursday, will take steps to narrow the pay gap between regular and part-time employees, but critics say it is still too easy for companies to flout labour laws and suppress pay for part-time workers.Some economists also worry companies could try to lower pay for full-time workers to narrow the pay gap, which would depress overall wage growth.
The government also wants to raise the birth rate to 1.8 per woman from 1.4, which is a step in the right direction but still below 2.1 - the rate needed to simply prevent a population from shrinking.
Abe's fiscal policy has also disappointed after his decision on Wednesday to delay a sales tax hike raised doubts over how he will plug the hole left in public finances.
Abe has said he will announce a "comprehensive and bold" economic package this autumn, raising concerns he will fall back on big fiscal spending on infrastructure, which does nothing to reverse a decline in the working-age population.
"The reason growth is slow, I think, has got nothing to do with fiscal policy being a little bit too tight or a little bit too loose," said Richard Jerram, chief economist at Bank of Singapore.
"The explanation for the slow growth is just the demographics, the structural rigidities."
The growth strategy will reiterate a pledge to bring the primary budget balance into surplus by fiscal 2020 to rein in public debt which is already more than double annual economic output.
But the strategy is expected to be short on detail of how the government will make up for lost revenue and pay for rising welfare spending.
The mention of revenue raising measures is unlikely to go down well with voters, as Abe and the parties campaign for a poll for parliament's upper house on July 10.
Instead, Abe has said the election would be a chance for voters to rule on his decision to postpone the tax increase.
The tax hike delay is likely to be popular with a majority of voters, although surveys show nearly a quarter think it should have been implemented as scheduled.