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Debt-issuance levels point to lack of concern for debt: experts

by Tomoko Otake and Reiji Yoshida

Staff Writers

The Abe administration is boasting that its general account budget for fiscal 2014 — totaling a record ¥95.88 trillion — reflects its resolve to achieve the dual tasks of pulling the nation out of decades-old deflation and restoring fiscal health to the government.

Experts, however, say it fails to show that the Abe team is serious about revising the debt-driven fiscal structure as more than 40 percent of the budget will be paid for through new debt issuance.

The administration plans to issue ¥41.25 trillion in new bonds, down ¥1.6 trillion from fiscal 2013. It also expects more than ¥50 trillion in tax revenue, counting on a ¥5 trillion rise thanks to the consumption tax hike in April to 8 percent as well as an increase in revenue due to an uptick in the economy.

“The budget is still inflated,” remarked Sayuri Kawamura, senior economist at the private-sector Japan Research Institute. “It fails to deal squarely with the nation’s fiscal problem. Outlays will increase in pretty much all areas except for allocation of tax grants to local governments.”

Kawamura’s view is in stark contrast to the comments made Tuesday by Chief Cabinet Secretary Yoshihide Suga, who claimed the draft budget has “managed to reduce the new issuance of bonds while prioritizing investments in the future and ensuring safety and security in people’s lives.”

In particular, Suga cited a drop in the primary balance deficit — the gap between revenue excluding one from debt issuance and policy spending — to ¥18.0 trillion, a ¥5.2 trillion improvement from fiscal 2013, as an example that the administration is making progress in curbing expenditures while investing in growth areas.

The administration of Prime Minister Shinzo Abe pledges to trim that deficit by ¥4 trillion in fiscal 2014 and by another ¥4 trillion the following year, toward the goal of halving the primary balance deficit by 2015 compared with the 2010 levels and eventually erasing the deficit by 2020.

Kawamura, however, cautioned against putting too much emphasis on primary balance figures, saying the policy plan itself is far from enough to address the fiscal crisis, where the national debt is expected to reach ¥1.01 quadrillion at the end of fiscal 2014, more than 200 percent of gross domestic product.

Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley Securities Co., likewise is far from thrilled by the draft budget.

“I don’t think the budget shows characteristics unique to Abe,” Muguruma said, noting the overall structure remains unchanged from previous versions, except for social security costs, which will top ¥30 trillion for the first time.

She said the goal of halving the primary balance deficit by 2015 will be achievable — if the government follows through with its plan to raise the sales tax to 10 percent in October 2015.

“So far we have a tailwind in the sense that the economy is recovering,” she said. “But from fiscal 2016 onward, I think there’s a huge possibility that the plan to improve the primary account balance will falter.”

Masaya Sakuragawa, a professor of economics at Keio University, gave an even grimmer assessment of the draft budget.

“I guess the budget, at a glance, could be described as a good one amid the worst circumstances,” he said, pointing to a ¥7 trillion increase in tax revenue. “But over the medium to long term, it only shows that the pace of Japan heading into default has slowed down.”