Experts say lack of reform vision a drag confidence

The fiscal reform package approved June 3 by the Cabinet is expected to save the nation a substantial amount of money, but whether it will bring real change to Japan’s fiscal structure is highly debatable.

Many scholars and economists acknowledge that Prime Minister Ryutaro Hashimoto is determined to push forward drastic reform to restore Japan’s fiscal health. However, they contend that the fiscal “structural” reform, which has been the priority out of the prime minister’s six reforms, has apparently failed to live up to its name.

Harunori Yamada, a senior staff researcher at Mitsubishi Research Institute, said that political leaders have finally come to recognize the ongoing fiscal problems, noting that is a positive development. However, Yamada said, although Hashimoto has repeatedly emphasized his determination to accomplish reforms with strong “political leadership,” such leadership has not produced any clear visions for revamping the nation’s fiscal structure.

Koji Hamada, an economist at Sanwa Research Institute, also gives Hashimoto’s package a certain amount of credit but characterizes it as a “first step” to be followed by further reform measures. “Numerical targets have been set item-by-item for reducing expenditures, rather than setting a single target for all items as has been the case under the conventional ceiling system of budgetary compilation. Also, the plan has cut into some of the areas that have remained sanctuaries, such as defense and official development assistance,” he said. However, he points out, the plan has failed to spell out specific followup measures to be implemented after the so-called “intensive reform period” ends in 2000, which leaves open the possibility that fiscal expenditures will rise again. “You don’t necessarily follow foreign examples,” he said. “But the U.S. government, for instance, has adopted a method in which expenditures in one area must be cut to increase those in others. I wonder why the Japanese government could not come up with such a scrap-and-build system to prevent future problems.”

Atsushi Miyawaki, a professor of law at Hokkaido University, acknowledges the need for numerical control over government expenditures as a way to reduce overall fiscal deficits, which he says is one purpose of the ongoing fiscal reform. However, he said that this will not provide an answer to a more crucial and fundamental problem: restoring confidence in Japan’s fiscal health.

Though much emphasis has been put on setting the numerical targets, he said, conventional tendencies — such as protecting vested interests, providing benefits to certain groups and giving subsidies to incompetent ones — remain intact. He questions the rationale behind the prime minister’s stance of allowing no sanctuaries in his reform effort. “The idea is to make everybody endure pain so that no one can complain. But then, when things start getting well, everybody starts demanding more,” he said. What the government should have done, he said, is set clear priorities for policies and then reallocate the budget in accordance with them.

Nobuaki Takahashi, senior economist at Japan Development Bank’s Research Institute of Capital Formation, said the government seems to have finally recognized the need to revamp the fiscal structure. “I have no objection to that recognition,” he said. “But the problem is that the plan has included no specific measures to achieve that goal.”