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Editorial: 100 trillion yen draft budget clouds Japan’s fiscal future

  • December 22, 2018
  • , The Asahi Shimbun , 1:15 p.m.
  • English Press

The government’s draft initial budget for fiscal 2019 calls for a record 101,456.4 billion yen ($914 billion) of general-account expenditures in the year starting in April, the first-ever spending plan to exceed 100 trillion yen.

 

Chief Cabinet Secretary Yoshihide Suga and Finance Minister Taro Aso separately made almost identical remarks in lauding the spending blueprint for the next fiscal year. They said to the effect, “We have a budget that can achieve both economic revitalization and fiscal rehabilitation.”

 

Are they right?

 

One key reason for the spending growth concerns generous appropriations for programs favored by Prime Minister Shinzo Abe. The top budget priority is a package of measures to cushion the economic impact of the scheduled increase in the consumption tax rate to 10 percent next year.

 

A total of 2,028 billion yen has been earmarked for the measures, including a program to reward cashless payments for purchases with a special return in points that purchases normally generate. The amount is even larger than the expected additional revenue due to the tax hike, estimated at about 1.3 trillion yen.

 

The government’s social security spending will amount to a record 34,058.7 billion yen, an increase of 1 trillion yen from the previous year. In addition to unavoidable increases due to the aging of the population, free early childhood education and day care, which were among the ruling Liberal Democratic Party’s campaign promises for the Lower House election last year, will also push up social security outlays.

 

Defense spending will also hit a record high in line with new Mid-Term Defense Program.

 

The government’s total spending for the current fiscal year, which runs through March, will actually reach 101,358.1 billion yen if the expenditures under the second supplementary budget are included.

 

In short, the government will spend more than 101 trillion yen for the second year in a row, despite a fiscal squeeze.

 

Tucked in the second extra budget are funds for policy efforts to make the nation less vulnerable to natural disasters, also among Abe’s priorities, as well as such familiar supplementary expenditures as additional spending on defense and measures to support the agriculture, forestry and fisheries industries.

 

Overall government spending for fiscal 2019 will be higher than the hefty amount proposed in the draft budget if a supplementary budget is compiled as usual.

 

Still, the Abe administration claims that the spending plan is compatible with the government’s efforts to regain fiscal health because the amount of government bonds to be issued under the initial budget will fall from the previous year for the seventh straight year since Abe returned to power.

 

But this argument is misleading. The total amount of government bonds issued in fiscal 2018 will actually be larger than the figure for the previous year because of an additional issuance under the second extra budget.

 

This approach only creates an appearance of better budget health without achieving any real improvement.

 

The government’s estimate of its revenues for the next fiscal year, on which the bond issuance plan is based, may prove to be overly optimistic.

 

The government predicts its tax receipts will reach 62,495 billion yen, higher than their peak during the asset-inflated economy era.

 

But this estimate is based on the assumption that Japan’s economy will attain nominal growth of 2.4 percent in the year, higher than the predictions by most private-sector forecasters.

 

The government’s plan to transfer 800 billion yen of earned surplus from the Deposit Insurance Corp., the government-backed body to protect private bank deposits, to the budget account is also an unconventional measure to bolster the government’s revenue.

 

In 1965, the Japanese government issued bonds to finance its spending for the first time since the end of World War II. The total of government bonds outstanding grew over years to 161 trillion yen in fiscal 1989 and will reach 897 trillion yen in fiscal 2019.

 

Despite healthy tax revenue growth in recent years thanks to the lengthy economic expansion that started in late 2012, already the second longest in the postwar era, the government debt has failed to shrink significantly because of difficulties in reining in spending growth.

 

Debt servicing costs will account for about a quarter of the total government spending. The current situation will eventually make it difficult for the government to continue providing stable public services in various fields.

 

What is really worrisome is the fact that the Abe administration is not showing any clear signs of being aware of the looming fiscal crisis.

 

–The Asahi Shimbun, Dec. 22

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