The Cabinet has decided on a set of guidelines for budgetary requests for fiscal 2013, starting the process of formulating the spending plan for the year that begins next April.
As the Diet recently passed legislation to raise the consumption tax rate to 10 percent in two stages, it is vital for the government to win public support for the tax hike by demonstrating a solid commitment to serious budget reform. The reform should be designed to ensure substantial spending cuts while introducing effective measures to revitalize the nation's flagging economy.
But the budget request guidelines don't signal that the government is firmly committed to overhauling the budget.
The biggest feature of the budget guidelines is a special earmark for measures to be taken under a new strategy for reinvigorating Japan that was announced by the government in July.
This policy initiative requires ministries and agencies to cut their respective spending but allows them to make budget requests of up to 4 trillion yen ($50.27 billion) in total in three areas: (1) energy and the environment; (2) health; and (3) agriculture, forestry and fisheries. The government says it will rigorously assess the budget requests under this initiative to create a well-focused blueprint for spending.
The Democratic Party of Japan-led government introduced such special earmarks for Japan's economic revival in past budgets, but this approach has so far ended up providing ministries and agencies with tools to avoid budget cuts. Bureaucrats succeeded in inserting outlays for existing programs and projects into their requests by cooking up various excuses and rationales.
The government has yet to offer a clear answer to the crucial question of how to prevent such abuses of the measure.
There is also a big loophole in the government's decision to reduce public works spending by 10 percent from the last fiscal year.
That loophole is a special account for measures to reconstruct areas hit by last year's earthquake and tsunami. No upper limit is imposed on budget requests for the special account, which is separate from the general-account budget.
This special account was misused by bureaucrats, both under this fiscal year's original budget and last fiscal year's supplementary budget, to secure appropriations for projects that are not directly related to the reconstruction of disaster-hit areas.
The ruling DPJ and two opposition parties, the Liberal Democratic Party and New Komeito, are calling for expansion of public works spending under the banner of "disaster preparedness."
We fear that politicians and bureaucrats may stretch their interpretations of the words "reconstruction" and "disaster preparedness" to suit their purposes.
Social security spending, the largest category, accounts for 30 percent of the general-account budget, and the budget request guidelines state that efforts should be made to ensure maximum efficiency by not making such spending untouchable.
There is clearly a compelling case for not exempting social security spending from the budget-cutting drive.
In accordance with this policy, the government has promised a review of the livelihood protection program for low-income earners, but it has decided to put off raising the ratio of out-of-pocket payments by patients aged 70-74 for their medical expenses back to 20 percent from the current 10 percent.
It will be difficult for the government to ensure really effective spending reform if it eschews cuts that are likely to incur the wrath of voters and instead focuses only on areas where there is not much resistance to spending cuts.
Such an approach could lead to cuts even in necessary expenditures.
The overall budget picture remains bleak, with massive debt financing set to continue the next fiscal year.
The target for the total amount of newly issued government bonds is 44 trillion yen or lower, the same level as that for the current fiscal year.
That will be about twice as much as the debt servicing cost, or the amount of money required to cover the repayment of interest and principal on debt issued in the past.
In other words, the government will borrow afresh more than double the amount of its debt repayment in next fiscal year. That’s nothing other than a disastrous debt spiral.
According to the government's estimate, Japan's primary balance--government receipts minus all outlays other than net interest--will be an annual deficit of 15 trillion to 16 trillion yen even after the consumption tax rate is raised to 10 percent in 2015.
A tax hike alone cannot restore health and stability in the state finances. We wonder whether the DPJ-led government is aware of its failure to deliver on the party's election promise to totally restructure the budget to secure necessary funds for its policy proposals.
--The Asahi Shimbun, Aug. 18
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