The Yomiuri Shimbun
Govt must present clear measures to cut spending in fiscal reform plan
The basic idea to seek both economic growth and fiscal reconstruction is appropriate, but strong enthusiasm for reducing government spending cannot be felt.
The government has compiled the draft outline of its Basic Policies for Economic and Fiscal Management and Reform.
The government, in the draft outline, sets a medium-term target of cutting the deficit in fiscal 2018 to about 1 percent of gross domestic product as a step toward achieving the government goal of turning the primary balance of the central and local governments into a surplus by fiscal 2020.
The central government designated the three years until fiscal 2018 as a period for intensive reform and showed a “criterion” of limiting rises in general account spending, excluding redemptions of government bonds and certain other items, to about ¥1.6 trillion for the three years to March 2019. The draft outline calls on the government to limit growth in social security costs, which are expected to increase by ¥1 trillion each year, to ¥1.5 trillion for the three years.
Akira Amari, economic revitalization minister, and others were reluctant to put a ceiling on government spending. But without the ceiling, there is a fear that tax revenue increases as a result of economic growth could be used for an expansion of expenditures in an unregulated manner. It is significant that the draft outline put a certain brake on increases in government spending in line with the opinions of Finance Minister Taro Aso and others.
It is worrisome that the draft outline is lacking in concrete measures to curtail government spending in the future as planned.
The target amount of an increase in general account spending, excluding redemptions of government bonds and certain other items, was determined based on past performance in fiscal 2013 to 2015. With the aging population, there is no guarantee that the government could curtail spending in the future as much as it did in that period. Ceaseless efforts for spending reform are indispensable.
Face the pain
However, the draft outline seldom mentioned important issues, such as hikes in out-of-pocket payments for medical fees for high-income senior citizens, or heavier taxation on their pension money.
The draft outline also did not clear a concrete target date to realize an increase in the use of generic medicine to more than 80 percent, which is a essential to controlling medical costs. In consideration of the Health, Labor and Welfare Ministry, which is cautious about setting the target date, the draft outline said only in an ambiguous manner that the realization should be made “at the earliest date possible in [the period from] fiscal 2018 to the end of fiscal 2020.”
Since the bankruptcy of Lehman Brothers in 2008, the government has introduced a system to add extra amounts of money to tax grants from the central government to local governments. The draft outline postponed the abolition of the system, instead only mentioning “trying to make efforts to change the system to the status quo ante.”
We have to say that the government got cold feet in fear of the refutation of the ministries and local governments opposing various expenditure cuts.
Japan’s debt has topped ¥1 quadrillion, already the worst fiscal condition among advanced countries. Looking toward fiscal 2025 and later, when the baby boomers pass the age of 75, it is necessary to start painful reforms earlier.
From the start, the fiscal reconstruction measures this time are determined based on the assumption of real economic growth of 2 percent. If growth remains at 1 percent, the deficit in the primary balance would increase by ¥7 trillion. The harsh reality should not be forgotten.
The government should beef up concrete measures for spending reform to steadily realize the goal of turning the primary balance of the central and local governments into a surplus by fiscal 2020 and laying the foundation for future fiscal consolidation.
(From The Yomiuri Shimbun, June 24, 2015)