EDITORIAL: Draft budget further dims outlook for fiscal rehabilitation

Prime Minister Shinzo Abe’s labeling of the fiscal 2020 draft budget as a spending plan that will achieve “both economic regeneration and fiscal rehabilitation” sounds hollow.

The government’s draft budget for the year that starts in April would allow it to spend more than 100 trillion yen ($917 billion) for a second straight year. The initial budget would be even larger than the total amount of government spending in the year when the economy was buffeted by the global recession triggered by the 2008 collapse of U.S. investment bank Lehman Brothers, a serious downturn that forced the Japanese government to ramp up expenditures to stoke growth.

The increase in budget outlays is a product of generous funding for policy programs the Abe administration favors.

Tucked in the spending blueprint is money for limited-time special measures to cushion the impact of the increase in the consumption tax rate in October. The measures for the next two years include over 1 trillion yen worth of public works projects to bolster preparedness for natural disasters, including the enhancement of river banks. Another is a 500-billion-yen program to provide an incentive for cashless payments for purchases by offering a special return in reward points.

Abe’s own policy initiative to offer tuition free nursing care and reduce the burden of higher education would cost 1.7 trillion yen and be funded from the expected increase in tax revenue due to the consumption tax increase. Defense spending would also grow to finance new weapons programs the government plans to introduce.

The rise in the consumption tax rate to 10 percent will bolster the government’s tax receipts to a record of amount of more than 63 trillion yen, according to a Finance Ministry estimate. But that will still fall short of the overall government spending plan by nearly 40 trillion yen, doing little to remedy the budget imbalance.

Since he returned to power in late 2012, Abe has been stressing the importance of restoring fiscal health. All of the initial budgets formulated by the Abe administration since then called for a year-on-year reduction in new government bond issuance.

But some budgeting gimmicks have been involved here.

Many measures the administration wants to finance but is unable to squeeze into the spending plan for the next fiscal year, for instance, would be paid for from the draft supplementary budget for the current fiscal year unveiled a week ago.

In addition, the budget blueprint for the next fiscal year calls for using all of the leftover budget funds from fiscal 2018 to fund the extra and initial budgets. The law requires the government to use at least half of such leftover money to finance its debt payments. The rule has been suspended since the 2011 earthquake and tsunami as an exceptional measure to fund emergency expenditures.

The government’s narrative about a decline in new government debt issuance is also misleading because it only refers to the initial budget and ignores supplementary issuance during the fiscal year. Counting such supplementary issuance, the total of fresh government borrowing in each of the past two fiscal years was larger than the figure for the previous year.

The government remains trapped in a harmful habit of relying on extra budgets to finance its spending to curb growth in budget and debt in the initial plan.

The real picture of state finances offers nothing to indicate an improvement in the government’s fiscal health.

The government’s spending blueprint is also riddled with rigidities. Over 70 percent of the total will be used to pay for growing social security spending due to the aging of the population, debt-servicing costs and state subsidies to local governments.

It is difficult to make quick and significant cuts in these expenditures.

Spending on the administration’s pet programs, coupled with the surging costs of them going, inevitably causes the budget to keep swelling.

The government seems to be willing to depend heavily on debt financing on the assumption that interest rates will remain extremely low, at least for the time being.

There is little room for funding new programs and the long-term sustainability of vital public services is at risk.

The Abe administration claims that the consumption tax hike has been a major step forward toward fiscal health.

If so, the administration should stop trying to gloss over the budget ills.

Abe has a responsibility to explain to the public the actual state of government finances and his administration’s long-term plan to cure the budget ills.

--The Asahi Shimbun, Dec. 21