EDITORIAL: Balancing the budget

The moment of truth for the administration of Prime Minister Naoto Kan is just around the corner, in the shape of the fiscal 2011 draft budget, which is scheduled to be hammered out by year's end. On one side stand the people, who continue to pin their hopes on Kan's administration and are coolly assessing its stance. On the other side, the market is worried about the nation's financial health.

The Kan administration must convince both sides with its budget plans.

On Tuesday, the Finance Ministry announced its guidelines for budget appropriation requests to cap the nation's general account spending. According to that outline, the government wants next year's general budgetary framework including total spending to be similar to this fiscal year's financial plan. The road to achieving that goal promises to be difficult. Success is uncertain without a bold approach.

This year's budget, the first compiled by the ruling Democratic Party of Japan, saw tax revenues shrink severely because of the global recession. The issuance of government bonds exceeded tax revenue.

The policy set forth in Tuesday's outline is for the fiscal 2011 budget to stay within those ballpark figures. Expenditures, with the exception of principal and interest payments on debt, will be held to within 71 trillion yen ($821.5 billion). Newly issued debt will be restricted to no more than 44 trillion yen.

This is no time for large tax hikes and, with the economy in mid-recovery, broad spending cuts would also be risky. Though it is hardly a desirable situation, the government's judgment appears to be that the only feasible option is to continue borrowing more than it receives in tax for another year.

Yet, even holding those borrowings under the 44 trillion yen ceiling won't be easy. The lion's share of the so-called maizokin (buried treasures), funds stashed away in special accounts and elsewhere, appears to have been spent. Meanwhile, due to the aging population, social security costs are steadily increasing. They are projected to increase by 1.3 trillion yen in the next fiscal year.

The government's idea is apparently to fence off the budgets for medical services, nursing care, the environment, tourism and other areas which are expected to stimulate economic growth and job creation. Funding will be allocated to these areas on a priority basis.

This would require considerable cuts to other areas of the budget. It should not necessitate an across-the-board formula for cuts. Rather, a truly bold approach, not only cutting but also reallocating funds, is required.

Objections to such cuts are being voiced by some Cabinet ministers, notably Seiji Maehara, the minister for land, infrastructure, transport and tourism, who slashed public works spending at the end of last year. Kan must exercise forceful leadership in working out these differences.

In order to compile such a draft budget, plans for toll-free expressways, full-fledged income guarantees for individual farmers, and the payment of the full value of child allowances should be sent back to the drawing board. Other planks of the DPJ election manifesto will also have to be reviewed.

Along with its budget preparations, it is also imperative for the government to start earnest discussion of sweeping taxation reform, focused on the consumption tax rate. Abnormal budgets dependent upon massive borrowing cannot continue forever. Failure to establish a solid basis for Japan's public finances leaves the door open for an eventual collapse in Japan's government bonds.

With the euro crisis, the anemic U.S. economy and other worries at hand, the global economic scene remains unstable. To the greatest degree possible, fiscal strength must be restored to a level where the country can weather an unexpected crisis.

Drafting a budget that shows the way toward establishing satisfactory public finances holds the key to restoring confidence in the government.

--The Asahi Shimbun, July 21