EDITORIAL: Budget planning

The formulation of the budget for next fiscal year is shaping up as a key test for the administration of Prime Minister Naoto Kan. The central question is whether the spending plan will mark a step toward Kan's policy goal--a combination of "a strong economy, robust public finances and a strong social security system."

Although its debt-laden finances are in the worst shape among industrialized countries, Japan is not facing the kind of debt crisis that hit Greece, at least for now. Along with Japan's current-account surplus, one reason is the fact that its tax level is the lowest among industrial nations, leaving considerable room for raising the consumption and other taxes.

The nation needs to demonstrate its ability to put its budget deficit under control to convince the rest of the world that it can avoid the Greek-style debt crisis. Financial markets and the international community are taking a critical look at Japan's fiscal reality while carefully monitoring the government's specific actions to deal with the situation.

The Kan administration on Tuesday decided on fiscal 2011 budget request guidelines, which mark the beginning of the process of crafting the spending plan for next fiscal year. The administration deserves credit for deciding to keep the total amounts of policy spending and new bond issuance on a par with or below the figures for the current fiscal year as a step to rein in spending growth.

The question is how to achieve the targets.

Keeping the size of the budget from growing cannot be achieved simply by maintaining the status quo. Social security spending automatically increases by more than 1 trillion yen ($11.3 billion) every year due to the aging of the population. The increase must be offset by cuts in other outlays.

The Kan administration has also decided to earmark an amount "considerably larger than 1 trillion yen" for spending to stimulate job creation in areas like health and nursing care and environmental protection under its new strategy for stoking economic growth. This initiative requires slashing other expenditures.

The situation has led the government to decide on a uniform 10-percent reduction in the budget requests from all ministries and agencies.

Budget ceilings were used for decades as a means to curb spending growth. After the Democratic Party of Japan came to power last year, however, the coalition government led by former Prime Minister Yukio Hatoyama scrapped the system, which it criticized as "rigid." But it led to sharp increases in the budget requests from ministries and agencies, causing serious problems in the budget planning process.

Given what happened last year, reviving the approach is a reasonable move. The government could still find a way to restructure the budget in a fairly bold manner.

The Kan administration plans to introduce "a policy contest" open to the public into the budget allocation process. We hope the government will work out an effective and reasonable way to set policy priorities so that the new approach will not end up as political claptrap.

The government should also use this contest to re-assess the importance of the main policy proposals in the ruling party's manifesto for last year's Lower House election, which led to the power transfer. They should include toll-free highways, the new child allowance program and income indemnity to farmers. It is unreasonable to implement all these measures, each of which require trillions of yen, according to the original plans.

The government should give the public an accurate picture of the fiscal situation and use the contest to set priorities by comparing these new programs with existing ones. This would make clear which of the initiatives should be acted on and which should be abandoned.

Unfortunately, the process of deciding on the budget ceilings was not quite transparent to the public. Under the previous coalition government of the Liberal Democratic Party and New Komeito, the Council on Economic and Fiscal Policy, which included outside experts as well as top government policymakers, determined the budget framework. Records of the panel's discussions on the issue were later published.

Creating an open policymaking forum for the formulation of future budgets and other tasks is another important job for the Kan administration.

--The Asahi Shimbun, July 28