EDITORIAL: Managing public finance

Prime Minister Naoto Kan and former Democratic Party of Japan Secretary-General Ichiro Ozawa showed strikingly different stances on implementing the party's manifesto in Wednesday's news conference.

They also clearly oppose each other on the critical issues of how to secure revenue for the policies and rebuild the nation's ailing finances.

The one-on-one race for the DPJ presidency is also a battle over how to manage public finance, an issue that could have a major impact on people's lives.

Ozawa says a huge amount of money can be secured by reforming the bureaucracy-led government system and argues that a thorough cut of wasteful spending should take precedence over talk about tax increases. Kan says he will tackle reforms of the tax system, including the consumption tax rate, and the social security system as a set.

Both arguments are reasonable in their own ways. But fiscal administration cannot be carried out by philosophy alone. How much revenue is needed and how can it be secured? Are the programs sustainable? Their arguments, no matter how attractive, will not hold without supporting evidence.

A huge amount of revenue is needed to fully implement the policies proposed in the DPJ's manifesto, such as full payment of child allowances and abolition of expressway tolls. Whose argument is more convincing, Kan's or Ozawa's?

The budget compilation for fiscal 2011 serves as a litmus test. Now that budget requests have been submitted by all ministries and agencies, this is a good time to compare their ideas.

The total amount requested for the general account budget has reached nearly 97 trillion yen ($1.15 trillion), the largest amount ever.

Subtracting government expenses used to redeem bonds and pay interest, the amount requested for general expenditures is nearly 73 trillion yen.

The Kan administration wants to cut that amount to 71 trillion yen or less, which is comparable to this fiscal year's budget. It also has a target to keep the issuance of new government bonds to 44 trillion yen, equivalent to the amount issued this fiscal year.

If the Kan administration stays in power to advance the budget compilation, it will likely accomplish its goal by cutting 1 trillion to 2 trillion yen from the requested amount.

A debt of 44 trillion yen, which is greater than the tax revenue, is abnormal. Still, when we consider the strength of the Japanese economy and the uncertain future of the global economy, it is difficult to drastically implement austerity measures.

For now, the administration should stick to this goal as a minimum requirement.

But what would happen if Ozawa becomes prime minister? Wouldn't the slogan of cutting waste fall apart and the government go on a spending spree?

Ozawa proposed to raise the payment of child allowances to 20,000 yen a month in fiscal 2011. In addition, if all of the policies stated in the manifesto are implemented, the budget would swell by 4 trillion to 5 trillion yen.

Under such circumstances, can Ozawa still maintain the 71 trillion yen and 44 trillion yen ceilings? Or does he think he does not have to stick to them? Ozawa must make himself clear on this point.

If Ozawa says he will "abide" by the ceilings, he has to explain in concrete terms how he will secure funding.

Japan's public finance, which relies on debts, is in the worst shape among industrialized countries. There is a growing danger that Japan's debt problem could trigger a sharp drop in the market value of government bonds. We fear that Ozawa's course could spur that trend.

--The Asahi Shimbun, Sept. 2