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ECONOMY

Editorial: Japan should cut gov’t spending, not rely on unrealistic economic growth

  • September 3, 2019
  • , The Mainichi
  • English Press

Budget requests made by ministries and agencies in Japan for fiscal 2020 totals a record of about 105 trillion yen, highlighting the policy of expanding government spending adopted by the administration of Prime Minister Shinzo Abe.

 

Moreover, economic stimulus measures to be taken to prevent the October 2019 consumption tax hike from adversely affecting consumer spending will be funded separately. It is almost certain that the actual fiscal 2020 state budget will surpass 100 trillion yen, like it did in fiscal 2019.

 

Outstanding government debt is over 1 quadrillion yen. The national government’s annual tax revenue is slightly over 60 trillion yen, far from enough to cover the budget, forcing it to rely on the issuance of bonds to make up for at least 30 percent of total government revenue. The primary purpose of the consumption tax increase is to reduce the massive amount of state debt that must be repaid by future generations.

 

Since the government is asking taxpayers to shoulder the extra tax burden, it has a responsibility to show how Japan will overcome its heavy reliance on debt.

 

As long as the state cannot put the brakes on snowballing spending, it cannot justify the need to raise the consumption tax from the current 8% to 10%.

 

One of the focal points of Japan’s debt burden is social security expenses, which account for roughly one-third of the state budget. The increase in social security spending as a result of the aging of the population in fiscal 2020 is expected to be a moderate 530 billion yen, but this is largely because the number of children born shortly before and after the end of World War II declined.

 

Baby-boomers will begin to surpass the age of 75 from fiscal 2022, causing social security spending to further increase. It is an urgent task to thoroughly review the balance between the benefit and burden of supporting the social security system instead of just trying to balance the social security budget by reducing pharmaceutical prices.

 

The Defense Ministry demanded a record 5.3 trillion yen in defense spending. The ministry cites the increasingly severe security environment surrounding Japan as the reason for asking for more funds to cover defense outlays. However, the Abe government’s special treatment of defense spending stands out. It is essential to scrutinize the cost-effectiveness of high-priced U.S.-made weapons and other outlays.

 

What is more worrisome is public works spending. The Land, Infrastructure, Transport and Tourism Ministry demanded 6.3 trillion yen in budget appropriations for fiscal 2020, up 20% from the initial budget for this fiscal year. The ministry claims it prioritizes disaster management measures, but the ministry actually incorporated traditional road construction projects in its request for budget appropriations.

 

Just like in the fiscal 2019 budget, public works projects are expected to be the core of economic stimulus measures designed to offset the negative effects of the consumption tax raise, which will be funded separately from budget requests made by the ministries and agencies.

 

It is important to pay close attention to economic conditions. Regardless, unregulated expansion of outlays is not justifiable.

 

The government’s July projection of the primary balance of the state budget, which is a key index of fiscal health, worsened from its previous forecast. The estimate is based on the assumption that tax revenue will increase as a result of high economic growth. The latest projection has thus shed light on the need to limit government outlays.

 

It would be out of the question if the government were to loosen its fiscal discipline because it expects an increase in tax revenue as a result of the consumption tax increase. Such a practice could cause taxpayers to worry about the future and reduce their spending.

 

Prime Minister Abe should work to strictly limit government spending instead of relying on overly optimistic expectations for economic growth.

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