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ECONOMY > Finance

Editorial: Stimulus measures bloat FY19 draft budget to over ¥100 tril. / Road map to fiscal reconstruction blurred

  • December 22, 2018
  • , The Japan News , 7:34 p.m.
  • English Press

The Yomiuri Shimbun

 

The draft budget is unusually bloated for responding to a planned consumption tax increase. Easing up on fiscal discipline is unacceptable in its wake.

 

The government has decided on a draft budget for fiscal 2019 with a general account totaling ¥101.5 trillion, topping ¥100 trillion for the first time on an initial budget basis.

 

In the 30 years of the Heisei era, the size of the nation’s budget has ballooned by nearly ¥40 trillion. The government and the public should keep in mind that public finances have deteriorated at an accelerated pace.

 

Generous incentives

 

The government projects ¥62.5 trillion in tax revenue for fiscal 2019, which would exceed the peak figure in the years of the economic bubble. It plans ¥32.7 trillion worth of newly issued government bonds, a decrease for the ninth straight year.

 

A major factor for the drastic increase in the budget’s total is that the government has allocated about ¥2 trillion for economic stimulus measures in preparation for the consumption tax hike in October next year.

 

The government has included ¥280 billion to fund a point-reward program for purchases made with cashless payment methods, and ¥170 billion has been set aside for so-called premium shopping vouchers, which will be issued to low-income households, among others. Expanded funding for benefit payments to encourage home purchases and other incentives have also been included in the draft budget.

 

The point-reward program is designed to grant shopping points to consumers who make purchases by credit cards or other cashless payment methods.

 

The rebate rate will be 5 percent of such purchases at small and midsize stores and 2 percent at convenience stores and other similar retailers. Major supermarkets and department stores will not be eligible for this program. With the aim to prevent a downturn in consumption after the tax increase, this program will be limited to a nine-month period.

 

It is necessary to implement the consumption tax hike steadily to improve the nation’s fiscal health, which is the worst among developed countries. In the past, a consumption tax hike resulted in an economic recession. The aim of the government’s efforts to take all possible measures is understandable.

 

However, steps such as tax cuts for automobile and housing purchases will also be taken as a measure to offset the impact of the consumption tax hike. Whether the combined size of the budget and the tax system is appropriate should be closely examined through budgetary debates and in other occasions.

 

A slightly reduced tax rate, in which the consumption tax will be kept at 8 percent, will be introduced for the first time. This rate will be applied to food and beverages, excluding dining out and alcohol, as well as newspaper subscriptions. It is hoped that this measure will be introduced smoothly to mitigate the sense of a painful tax hike.

 

Smooth path to dual tax

 

There are concerns that the implementation of multiple measures could cause confusion at stores and other such places.

 

The government must strive to make the measures widely known to business operators and consumers.

 

Initiatives for building up the nation’s resilience, taking into account a series of natural disasters that have wreaked havoc on the country, have been positioned as part of economic stimulus measures to be taken along with the implementation of the planned consumption tax hike. Allotted public works expenses amount to ¥6.9 trillion, up ¥900 billion over the previous fiscal year.

 

Disaster prevention and mitigation are matters that should be addressed urgently, but projects not directly related to disaster countermeasures are suspected to be included in public works projects covered by the national budget. Taking into account the severe fiscal situation, pork barrel projects must be eliminated.

 

The biggest challenge in achieving fiscal soundness is to rein in social security spending, which accounts for one-third of the total expenditures in the budget. Social security appropriations amount to ¥34 trillion, an increase of ¥1 trillion, renewing the record high for seven consecutive years.

 

The government had set a goal to curb a year-on-year natural increase of social security spending at ¥500 billion in the budgets for up to fiscal 2018, but did not do so this time. Initially projecting a natural increase of ¥600 billion, the government has trimmed it by ¥120 billion to ¥480 billion.

 

The reduction of the natural increase allocation has been covered by raising nursing care insurance fees for high-income earners and lowering government-covered pharmaceutical prices.

 

It is a step forward that a certain amount of burden has been imposed on the people who are comfortable enough financially, but the margin of reduction in the natural increase of social security spending has fallen below that for the previous fiscal year. The situation remains unchanged that social security expenses have continued ballooning.

 

Of course, there is a limit to what can be achieved by the method of covering for the restraint on the natural increase of social security costs primarily by reducing state-shouldered pharmaceutical prices. It is imperative to tackle a full-scale reform accompanying restraint on benefit payments and increases in taxpayers’ burdens.

 

People born during the postwar baby boom period will all become elderly, aged 75 or older, in 2025. In fiscal 2040, when the population of senior citizens will reach its peak, social security spending is estimated to surge by 60 percent over fiscal 2018 numbers.

 

Reform ideas, including streamlining of medical treatment and nursing care and cuts in benefit payments, have already been on the table. It is essential for the government to push ahead with these reforms while winning over the people.

 

New integrated reform

 

The nation’s long-term outstanding debt will top ¥1.1 quadrillion at the end of fiscal 2019. The government has set a goal to turn the primary fiscal balance into the black in fiscal 2025.

 

But according to a trial calculation, there will remain a deficit of ¥2.4 trillion in fiscal 2025 even if the nation’s economy continues to grow at about 3 percent annually in nominal terms. If the economy expands at about 2 percent, the deficit will exceed ¥8 trillion in that year.

 

In compiling the budget for fiscal 2019, the government projected a nominal economic growth rate of 2.4 percent, which is higher than the mid-1 percent levels forecast by many private institutions. Fiscal management should be based on economic prospects that are relatively realistic.

 

Raising the consumption tax to 10 percent should never be a final goal. Looking ahead to fiscal prospects, further increases in the consumption tax will be inevitable. A new integrated reform for the social security and tax systems must be compiled urgently.

 

It is imperative to draw up a road map for fiscal reconstruction based on realistic prospects and present numerical targets.

 

(From The Yomiuri Shimbun, Dec. 22, 2018)

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