January 30, 2013(Mainichi Japan)
Editorial: Budget draft shows gov’t faces uphill battle in fixing debt-ridden finances
The fiscal 2013 state budget draft, which the government has approved, shows that the administration of Prime Minister Shinzo Abe faces an uphill battle in rehabilitating debt-ridden state finances.
In drafting the budget, the government trimmed new bonds that it will issue during next fiscal year to below the amount of estimated tax revenue — for the first time in four years. The government also managed to avoid increasing the total amount of the budget draft from that of the current fiscal year. The budget draft has sent the public a clear message that the Abe administration is determined to save the economy from the prolonged downturn while improving its fiscal discipline.
However, it must be kept in mind that the budget was drafted on the optimistic assumption that an economic stimulus package and other policy measures to be implemented by the government will drastically improve economic conditions. Despite broad tax breaks for businesses, the government estimates that Japan’s tax revenue will increase nearly 800 billion yen in fiscal 2013 from the current fiscal year because it projects that Japan’s economy will post 2.7 percent nominal and 2.5 percent real-term growth.
In the budget draft, the government is expected to issue less than 43 trillion yen worth of bonds, below the 44 trillion yen upper limit set by the previous administration led by the Democratic Party of Japan. However, this is also based on the optimistic assumption that interest rates will not increase.
When it released the budget framework for fiscal 2013, the Finance Ministry estimated that it would need to set aside a record 24.6 trillion yen to repay state debts and pay interest on outstanding bonds. However, the government reduced the amount to 22.2 trillion yen in the budget draft because it lowered the assumed interest rates from 2.2 percent in the budget framework to 1.8 percent.
If the government were to predict a boost in the economic situation, it should estimate that interest rates will rise. This reflects the latest market interest rates, but the government should have drafted a budget that can respond to any possible deterioration in the fiscal situation to a certain extent if it intended to maintain fiscal soundness.
Prime Minister Abe proudly said that the government has restored fiscal health because the estimated tax revenue is above the projected amount of state bonds the government will newly issue. However, Japan’s fiscal condition is not as sound as the prime minister believes, considering that 5.5 trillion yen worth of construction bonds will be issued to finance public works projects incorporated in the fiscal 2012 supplementary budget.
Moreover, the fiscal 2013 budget draft has raised concerns that emphasis may be placed on quantity rather than quality and on construction projects rather than people. Livelihood assistance benefits will be substantially reduced, but public works spending will increase 16 percent from the current fiscal year although a massive amount of funds to finance construction projects have been allocated for such projects from the fiscal 2012 supplementary budget.
Defense spending will be also increased for the first time in 11 years. The government needs to gain understanding from the public even in repairing and replacing aging infrastructure such as roads and bridges as well as increasing defense outlays, considering Japan’s serious state finances.
There are signs that Japan’s economy will pick up as the value of the yen has declined and share prices have risen.
However, the question is whether the government can sustain steady economic growth.
If concerns spread about the government’s free spending policy while the Bank of Japan has boldly relaxed its monetary grip, it could lead to an increase in interest rates as a result of a sharp fall in the market prices of bonds and eventually to a collapse of the government’s economic recovery plans.
Opposition parties have come under mounting pressure to grill the Abe Cabinet over its fiscal rehabilitation policy through Diet deliberations.
毎日新聞 2013年01月30日 02時31分