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Guarded optimism for debt-raising budget

by Jun Hongo

Staff Writer

Within a span of two weeks, Prime Minister Shinzo Abe’s Cabinet has signed off on a hefty ¥13.1 trillion supplementary budget for fiscal 2012 and a record ¥92.6 trillion main budget for fiscal 2013.

Cabinet members are looking to the bright side, stressing that issuance of government bonds in fiscal 2013 won’t exceed tax income for the first time in four years.

“We have normalized (the budget) after taking back the government” from the Democratic Party of Japan, Abe said Sunday ahead of the Cabinet’s approval of the new budget.

The 2013 budget projects the government will earn ¥43.1 trillion in tax income, up ¥750 billion from the current year, while bond issuance will fall by around ¥1.4 trillion to ¥42.9 trillion.

Finance Minister Taro Aso said Sunday that the government succeeded in trimming unnecessary spending, which resulted in a “compressed budget.”

Pundits were quick to jump on how the improbable trick of spending more while issuing fewer bonds was achieved.

“In reality, considering the size of the supplementary budget, the level of government debt hasn’t been reduced at all,” said Hisakazu Kato, a professor of finance at Meiji University.

Kato said that while it is now the norm for bond issuance to top ¥40 trillion, it had never reached that level until fiscal 2010. He also suggested the government, which calculated its tax income based on its own fiscal 2013 nominal GDP growth projection of 2.7 percent, might be overly optimistic.

“Restoring Japan’s fiscal health is still very far from being achieved,” the expert said.

A key feature of Abe’s spending blueprint is the sharp spike in public works spending to ¥5.29 trillion, a whopping 15.6 percent increase from the previous year.

Add this to the amount pledged for spending on public works in the supplementary budget and the total will reach ¥7.7 trillion over the next 15 months, according to the Finance Ministry.

“The increase in the public works budget is a measure to save the people’s lives and livelihoods,” a Finance Ministry official said Monday, adding that dealing with outdated infrastructure and strengthening buildings and roads for disaster prevention are crucial.

Opposition parties meanwhile are already questioning if the lavish spending can be justified.

“Unnecessary projects are included” in the spending plan, Your Party Secretary General Kenji Eda said Sunday of the supplementary budget plan.

The Democratic Party of Japan’s Goshi Hosono meanwhile said the Liberal Democratic Party is “turning back the clock” by returning to its pump-priming ways.

Another controversial spending hike is an additional ¥40 billion for defense, translating into an increase of 0.8 percent, with the money going to strengthening surveillance of the Senkaku islets.

Defense Minister Itsunori Onodera has repeatedly said that Japan Coast Guard vessels and personnel watching over the uninhabited islets in the East China Sea will be increased.

China, which claims the islets as its territory, responded quickly with a Foreign Ministry spokesman in Beijing saying Asian countries are keeping a close watch on Japan’s “militaristic moves.”

For reconstruction efforts in the Tohoku region, ¥4.4 trillion was allocated in the fiscal 2013 budget. The five-year plan crafted in 2011 to rebuild the disaster zone was scheduled to cost ¥19 trillion, but the annual framework is expected to be exceeded this year and the total could ultimately reach ¥25 trillion.

A Finance Ministry official said Monday that the government will pay off the excess by selling assets, including shares in Japan Post Holdings Co.

Overall, the budget plan the Cabinet approved Tuesday falls within the ¥71 trillion general spending limit and the ¥44 trillion cap on new bond issuances set by the DPJ administration.

Finance Ministry officials pointed out that this was achieved through cutting salaries of public officials by an average of 7.8 percent, while also slashing payments to households on welfare.

But Japan’s dependency on debt remains high. More than 46 percent of general spending in 2013 will be covered by government bonds.

Reports by the OECD predict that gross debt will reach 224.3 percent of GDP in 2013.

While Abe has worked quickly on the budget and his “Abenomics” helped stock prices and eased the yen, Meiji University’s Kato said it is time for the administration to ponder the long-term impact of its policies.

“Spending big on public works projects is a path we have taken in the past. There is a huge question on whether it will sustain economic growth in the long view,” Kato said, adding that although it could be difficult for the state to push forward any substantial austerity steps before the July Upper House election, ignoring this elephant in the room will only further worsen Japan’s fiscal balance.