EDITORIAL: Kan's spending plan

The government's draft budget for next fiscal year is an additional blow to the nation's fiscal health. The spending plan, endorsed Friday by the Cabinet of Prime Minister Naoto Kan, offered a portrait of a government excessively dependent on debt for financing its expenditures.

It is the first spending blueprint the government led by the Democratic Party of Japan has developed from the budget request stage. But its basic framework is almost identical to this year's budget, formulated by the previous administration of Yukio Hatoyama, Kan's predecessor.

The draft budget envisions total government spending of 92 trillion yen, making it the largest-ever original budget. But the estimated tax revenue is less than half that amount. The gap would be filled with debt in the form of government bonds and reserves and surpluses in special accounts, or so-called maizokin ("buried gold").

There was justification for the government's plan to issue a huge amount of bonds announced at the end of last year because massive public spending was needed to help the Japanese economy ride out the global economic crisis.

Wouldn't the government jeopardize the nation's future if it continues such fiscal expansion even after the crisis has started to wane? The spending plan doesn't offer an answer to even this basic question.

It appears that the unpredictability of the government's policymaking is breeding distrust and anxiety among the public, crimping business and consumer spending and accelerating the deflationary trend.

The population will continue aging, causing the government's social security spending to grow at an annual rate of over 1 trillion yen. But the government has yet to offer a plan on how to keep financing its social security programs.

The government first needs to ensure predictability and reliability of its policymaking to lay the foundation for a society where people can live with a sense of security.

The Kan administration needs to put forward its vision for the nation's future and seek public support.

Except for a revenue increase due to economic growth, there are only three possible remedies for a structural budget deficit: a sharp spending cut, a sharp tax hike or a combination of both.

The DPJ opted for pruning the government's spending and promised to save over 9 trillion yen through eliminating wasteful expenditures.

But the three rounds of budget reviews for spending cuts the government has carried out since last year have resulted in savings worth only about 1 trillion yen in total.

It has long been clear that the government's plan to fix the state finances only by eliminating wasteful spending doesn't work. It is glaringly obvious that it is impossible to restore fiscal health without a tax increase.

Kan was well aware of this when he referred to the idea of raising the consumption tax rate to 10 percent as a possible option before the July Upper House election.

The debt crisis in Europe is fueling speculative moves in markets around the world to make money by taking advantage of the deteriorating fiscal health of countries.

Japanese government bonds also became a target of such speculators when they were recently battered by a wave of sell-offs.

The combined central and local government debt load now equals 200 percent of gross domestic product, which means Japan's public finances are in the worst shape among industrial nations.

Still, investor confidence in Japanese government bonds has not collapsed because there is room to raise the consumption tax to boost government revenue.

This confidence in Japan's debt, however, will eventually crack if the political situation here keeps blocking the government from raising a tax.

After all, the only real cure for the nation's fiscal woes is to develop a convincing plan for a fundamental reform of the tax system centering on a consumption tax hike.

By doing so, the government would be able to guarantee the long-term viability of the social security system and convince the public of its commitment to creating jobs.

There is no other way to deal effectively with the fiscal challenge confronting the nation.

--The Asahi Shimbun, Dec. 25