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Abe’s 15-month reversal budget fudges cost of swapping people and butter for concrete and guns

by Noriko Hama

Special To The Japan Times

The government of Shinzo Abe has just unveiled its budget for fiscal 2013 starting in April. Abe’s stated intention was to “radically reset” spending priorities. He is indeed a man of his word. For this is a budget that is truly awesome for its radical step backward into the past — a past where every public spending project would do wonders to boost economic growth.

It is also a past where a cheaper yen would bring unmitigated benefits to Japan’s exporting industries.

None of it is really true anymore. Public works do indeed do wonders in boosting growth when there is nothing there to begin with. But in a mature and well-developed economy like ours, which is already so well equipped with all the necessities of modern life, they can at best have only a one-off effect in creating jobs and demand.

And in this globalized day and age, an exporting industry imports almost as much as it exports. No longer do we live in a world where a carmaker makes everything within the borderlines of its nationality.

Abe’s radical reset has just as much to do with philosophy as with timelines. Three phrases come to mind as I try to put this budget in a nutshell. They are: “from people to concrete,” “from the regions to the center” and “from butter to guns.”

The previous government led by the Democratic Party of Japan declared that it would put people before concrete. No more building of ever-empty concert halls and useless multiple amenity centers where nothing ever happens. More money would be spent on helping people escape their economic difficulties. They would give more power to the regions so they could decide for themselves what was really good and worked for the local community. Guns would most certainly not take precedence over butter. Or rather over the low-fat butter alternatives popular in these more health-conscious times.

All of this has been completely reversed in Abe’s fiscal 2013 budget. Public works spending is scheduled to go up by more than 15 percent while subsistence payments for people on welfare will be thrashed to the tune of more than 7 percent.

If implemented, this will be the largest cut ever in welfare assistance. The previous government set aside a lump sum to be transferred from the central government’s coffers to regional municipalities to be spent at their own discretion on local projects. This sum will now be clawed back into the central government’s own public works program.

The planned increase in spending on guns is admittedly small: a 0.8 percent increase over the fiscal 2012 initial budget. It is nonetheless the first increase of its kind in 11 years. And given the thrashing being dealt to welfare spending, the shift in emphasis from butter to guns is clearly apparent.

One of the Abe government’s boasts is that it will manage to hold down the overall size of the budget in comparison with fiscal 2012. The other one is that it will raise more revenues from taxes rather than borrowing. True enough on the face of it. But one has to remember the very big supplementary budget that the government intends to push through for the remainder of fiscal 2012. The money for that program will come mostly from borrowing.

Since the government is talking about a “15-month budget” that “seamlessly links up” the fiscal 2012 supplementary and fiscal 2013 initial budgets, they should talk in the same vein about the size of their spending and the borrowing needed to accommodate the whole 15-month package. It will not do to smother the big reset with a big coverup.

Noriko Hama is an economist and a professor at Doshisha University Graduate School of Business.