Three-year guidelines stick to ¥71 trillion spending cap

Kyodo

The government endorsed fiscal spending guidelines Friday for the three-year period starting next fiscal year, capping general-account expenditures at ¥71 trillion, excluding debt-servicing costs, the same as fiscal 2012.

The so-called medium-term fiscal framework, approved by the Cabinet, also said the government will retain for fiscal 2013 starting in April an annual cap on new bond issuances at around ¥44 trillion in the hope of achieving fiscal soundness.

Based on the assumption that the spending cap will be carried out, the government released an estimate that Japan will meet its self-imposed goal of halving its primary budget deficit in fiscal 2015, the year when the sales tax will rise to 10 percent.

The government has pledged to halve the deficit as a percentage of nominal gross domestic product in fiscal 2015 from the fiscal 2010 level and achieve a primary budget surplus for the central and local governments in fiscal 2020. A primary budget surplus means the country can finance government spending, except for debt-servicing costs, without issuing new bonds.

The estimate, meanwhile, showed that the country would stop short of achieving a primary budget surplus in fiscal 2020 amid increasing social security costs due to the aging population.

Under the scenario, the government estimates GDP would grow at an average annual rate of slightly over 1.0 percent in real terms or around 1.5 percent in nominal terms during the period through fiscal 2020.

Under a bill passed in the current Diet session, the 5 percent sales tax will be raised to 8 percent in April 2014 and to 10 percent in October 2015, but the latest estimate may fuel further calls for a further tax hike to restore the country’s fiscal health.

Stopgap spending curbs

Finance Minister Jun Azumi announced a set of extraordinary measures Friday to curb some budgeted government spending for this fiscal year to avoid a funds shortage as political deadlock continues to prevent a key bill on bond issuance from being passed.

It is the first time for the government to consider full-fledged cost-cutting on the budget during its implementation, and the abnormal fiscal situation could affect the economy down the road.

The debt bill is designed to secure more than 40 percent of revenues under the budget for fiscal 2012 through next March, by allowing the state to issue debt-covering bonds.

The Finance Ministry has warned that unless it is enacted, the government will run out of funds for administrative services as early as October.

As a concrete step to curb budget spending, the ministry is likely to delay the planned payment of tax grants to local authorities, Azumi told reporters.

But he promised that the government of Prime Minister Yoshihiko Noda will promptly initiate projects to reconstruct areas ravaged by the devastating 2011 earthquake and tsunami.

The government plans to issue more than ¥38 trillion in deficit-covering bonds to finance the ¥90.33 trillion initial budget for the year that began in April.

The debt bill was passed Tuesday in the Lower House, in which Noda’s governing coalition maintains a majority.

However, it is unlikely to be enacted by the Sept. 8 end of the Diet session because the opposition parties are boycotting Upper House deliberations following passage Wednesday of a censure motion against Noda in the chamber, which they control.