J: the budget will result in a further worsening of J's fiscal situation

verfasst von zani, 13.01.2004, 11:10

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Government Compiles Fiscal 2004 Budget Draft

The government's draft budget for fiscal 2004 (April 2004-March 2005) was

approved by the cabinet in late December and will be presented to the ordinary

session of the Diet that begins on January 19, 2004. In an effort to reduce

outlays in light of the grave state of the nation's finances, the government

has maintained a stance of fiscal austerity, with the general account rising

just 0.4% over fiscal 2003 to ¥82.11 trillion and general expenditures--the

funds used to implement policy--climbing just 0.1% to ¥47.63 trillion. Despite

such belt tightening, however, the budget will result in a further worsening

of Japan's fiscal situation, as a record ¥36.59 trillion of new government

bonds will be issued. There are growing calls for sweeping budgetary reform,

with one private-sector economist stating,"The government must urgently carry

out fundamental structural reform of state expenditure, including a review of

the rigid way in which fiscal resources are distributed."


Local Allocation Tax Disbursements Down

The draft budget includes cuts in such major areas of public spending as

energy (down 9.0% from the previous year), official development assistance

(down 4.8%), public-investment-related expenditure (which includes the

operating costs of public facilities) (down 3.3%), and defense (down 1.0%).

Payments to the regions through the local allocation tax will fall for the

first time in five years, by 6.1%, as part of the"three-in-one" reforms of

local government financing being undertaken by the administration of Prime

Minister Junichiro Koizumi. (The"three-in-one" reforms consist of cuts to

regional subsidies, the transfer of tax revenues to local governments, and a

review of the local allocation tax.) Despite the tough fiscal situation, on

the plus side the draft budget incorporates a 4.4% rise in spending on the

promotion of science and technology, with a particular focus on bioscience and

nanotechnology, and provides further funds for tackling such priority tasks as

improving and tapping Japan's human power, making urban and provincial areas

more attractive, coping with the graying of society and the declining

birthrate, and building a recycling society. Specifically, it includes

measures to reduce hospital prescription charges, to raise the maximum age at

which child allowance is payable, to increase the number of infants accepted

at public day-care centers, and to continue the income tax deduction for home

loans.

The government also has adopted"model projects" and"policy clusters,"

ideas that have been introduced in Western countries, in order to correct the

much criticized single-year focus and sectionalism of previous budgets, traits

that one senior official of the Ministry of Economy, Trade and Industry has

described as the main causes of budgetary inflexibility. The budget allocates

Â¥70 billion to 10 model projects (multiyear initiatives in which the extent to

which numerical targets are met will be strictly assessed), including ¥52.8

billion for a project aiming to raise the proportion of patent applications

and other types of paperwork filed electronically to over 96% and ¥1.1 billion

for a project to promote the use of biomass in plastic. Meanwhile, over ¥1.40

trillion is allocated to 10 policy clusters (in which ministries and agencies

cooperate to tackle a particular policy challenge in order to avoid budgetary

overlap), including ¥242.7 billion for the promotion of employment among young

unemployed people and ¥14.6 billion for the diffusion of low-pollution and

fuel-cell vehicles.


In compiling the budget draft, the government worked to review the 32

special accounts, which so far have been assessed less stringently than the

general account, and cut about ¥500 billion from the total special account

budget. The draft budget also reduces the fiscal investment and loan program,

under which funds are lent to special public corporations and local

governments, by 12.5% to ¥20.49 trillion, a drop of almost 50% since the size

of the program peaked in fiscal 1996.


The Need for Structural Reform of Public Spending

Despite these efforts to reduce spending and improve efficiency, increases in

social-security-related costs (up 4.2% to ¥19.80 trillion), which account for

almost half of the general account, and in the costs of paying the principal

and interest of government bonds (up 4.6% to ¥17.57 trillion) mean that the

Ministry of Finance, which was responsible for compiling the budget, has been

unable to meet its target of keeping spending below the fiscal 2003 level. The

general account registers its second consecutive annual rise, albeit a small

one. Furthermore, the total issuance of government bonds, including new bonds,

reaches a record ¥162.34 trillion, while the government's debt dependence (the

ratio of government bond issuance to total revenue in the general account)

hits a record high of 44.56%.

Although the government has raised the level of contributions and cut the

level of benefits in the employees' pension plan and hiked the individual

resident's tax in a frantic effort to increase revenue, with the economy in a

long-term slump there is little hope of an increase in tax revenues. Indeed,

in the fiscal 2004 draft budget national tax revenues account for a record low

50.8% of total expenditure from the general account. A bond dealer for a major

bank expressed the fears of many market players, saying,"Spending cuts like

those in the past in areas like public works and defense and small increases

in the burdens borne by ordinary people will not be enough to overcome the
fiscal crisis."


Prime Minister Koizumi used the draft budget to prepare the ground for the

three major planks of his reform program--pension reform, the"three-in-one"

reforms, and reform of highway public corporations. One economist expressed

hope that these reforms will bring about a bold reworking of the way fiscal

resources are distributed among regions and generations and between the public

and private sectors and will lead to lower public spending and greater

efficiency.


In the area of pension reform, however, the draft budget reveals only that,

in addition to raising contributions, from fiscal 2005 the government intends

to rely on tax rises to provide the money for increasing the portion of basic

pension entitlements funded from state coffers. Although Koizumi in the past

has given his seal of approval to the idea of raising the consumption tax, the

budget contains few steps designed to tackle head-on the task of adapting the

pension system to the aging population. Instead, pension reform has become

bogged down in adjustments to funding and benefit levels.


The"three-in-one" reforms of how local governments are financed are

similarly stalled. Although ¥424.9 billion in fiscal resources will be

transferred to the regions from the central government in the form of the

newly established local transfer tax on income, and ¥1 trillion will be

trimmed both from the local allocation tax and from state grants for the

regions, the Sankei Shimbun pointed out in a December 21 editorial that"these

measures will not promote regional autonomy." Many newspapers took a dim view

of the draft budget's contribution to the three planks of Koizumi's reform

program. In a December 25 editorial the Mainichi Shimbun observed,"In terms

of tackling the three reforms, the budget for next year is far from

successful."

(Copyright 2004 Foreign Press Center / Japan)

<ul> ~ Government Compiles Fiscal 04 Budget Draft</ul>

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• Japan: Steueraufkommen FY04 - zani, 13.01.2004, 10:43
  • J: the budget will result in a further worsening of J's fiscal situation - zani, 13.01.2004, 11:10