The Finance Ministry will be burning the midnight oil for weeks to come as it begins work on a draft spending plan for the fiscal year that starts in April.
Government ministries and agencies have submitted budget requests totaling 105 trillion yen ($988 billion).
Despite the Finance Ministry’s pledge to reduce the amounts requested through talks until the end of the year with the ministries and agencies, the odds of another state budget exceeding 100 trillion yen, like the one for the current fiscal year, remain disturbingly high.
The requests call for 30.5 trillion yen in spending on pension, health care and other welfare benefits and 25 trillion yen to repay debts. Social security and debt service combined account for half of the total.
Social security spending alone will eat up half of the tax revenues, projected to top 60 trillion yen. That means the government will have to take on more than 10 trillion yen in new debts just to finance other policy expenditures.
Despite the budget squeeze, many ministries and agencies, most notably the Defense Ministry, have sought increases in their requests.
Neither the scheduled increase in the consumption tax rate, which will generate more tax revenue, nor a two-year special funding scheme to cushion the impact of the tax hike should be used by the Finance Ministry as a pretext for being less rigorous in scrutinizing the budget requests for cuts.
While programs vital for the livelihood of the people and the nation’s economic growth should be adequately funded, the government’s budget drafters should also consider the well-being of future generations in formulating the spending blueprint for fiscal 2020.
The budget request guidelines, which set the basic rules and principles for drafting the budget, call for a vigorous spending reform, a meticulous policy priority review and the total elimination of wasteful expenditures.
The guidelines for fiscal 2019 incorporated the same principles, but it is hard to claim that they were actually followed. This time, the budget drafters should make a determined effort to ensure that they are.
The requests for funds by ministries and agencies, however, raise concerns about fiscal discipline.
Proposed state grants for disaster mitigation efforts and the fisheries industry and subsidies to support business and cultural activities, for instance, include some questionable projects and programs that have been criticized by government policymakers for poor effectiveness and outsized costs.
The Finance Ministry needs to scour the budget requests item by item for savings.
Even social security spending, which keeps rising due to the aging of the population, should not be saved from the ax.
Fiscal stimulus to stoke economic growth is another major factor behind the alarming budget expansion.
Indeed, there are many uncertainties in the economic outlook due to such factors as the tit-for-tat tariff war between the United States and China and Britain’s move to leave the European Union.
The impact of the planned rise in the consumption tax rate to 10 percent in October on consumer spending is another downside risk that needs to be monitored.
Prime Minister Shinzo Abe stresses that the fiscal 2019 budget includes “more than sufficient measures” to mitigate the impact.
While the possible negative economic effects of the tax hike, along with the murkier prospects of the global economy, should be given due consideration in developing the budget, these concerns must not be used as an excuse for any pork-barrel or other unjustifiable spending.
The budget drafters must rigorously assess the effectiveness of the proposed expenditures to get the maximum benefits from the new budget.
The budget health target that the Abe administration has set for fiscal 2025 cannot be achieved without all-out efforts to rein in the growth of national debt.
The principal challenge in drafting the budget will be in not squandering public financial resources. This will require an uncompromising assessment of the cost effectiveness of all budget items so as not to shift the burden to future generations.
–The Asahi Shimbun, Aug. 31