Budget shows old LDP stripes

The ¥92.6 trillion initial general-account budget for fiscal 2013 approved by the Abe Cabinet clearly shows that it is trying to depart from the orientation of the previous Democratic Party of Japan-led government.

While the Abe Cabinet has increased outlays for public works projects and defense, it has reduced the core part of livelihood assistance for the poor and abolished unconditional grants for local governments introduced by the DPJ government.

Basically this means that the social security net will be weakened while construction companies thrive.

The budget will use ¥3.2 billion to develop a new type of reactor based on the technology of the inoperative Monju fast-breeder reactor. Given Monju’s performance and the inherent danger from nuclear power generation, this runs counter to common sense.

Defense outlays will increase 0.8 percent to beef up defense of the Nansei Islands. But the government must not ignore diplomatic efforts to solve bilateral problems with China.

When future government spending included in the fiscal 2012 budget to pay for a half of the basic pension is taken into account, the fiscal 2013 budget is about ¥300 billion smaller than the fiscal 2012 budget. But this won’t restore financial health.

If a fiscal 2012 supplementary budget approved earlier by the Abe Cabinet is added to the fiscal 2013 budget for the April 2013 to March 2014 period, the budget outlays from January 2013 to March 2014 tops ¥100 trillion.

The government has to issue bonds to raise ¥48 trillion for the 15-month budgetary measures. The balance of outstanding bonds will come to about ¥750 trillion at the end of fiscal 2013. The Abe administration, which relies on massive public works spending to buoy the economy, has to rely on issuing a large amount of bonds.

The government is expected to compile another supplementary budget during fiscal 2013 for measures to reduce the impact of the consumption tax rate raise from April 2014 on people’s lives. If it again issues a large amount of bonds, it’s possible that bond prices will go down and long-term interest rates will go up.

In the fiscal 2013 budget, outlays for public works projects will increase 15.6 percent from the fiscal 2012 budget.

These outlays are coupled with the abolition of no-strings grants to local governments. Central government ministries will again get the upper hand over public works projects and local governments will lose their initiative.

The Liberal Democratic Party apparently hopes that increased public works outlays will help increase support for the party from construction companies in the countryside ahead of the Upper House election in July.

Social welfare spending, accounting for more than 30 percent of the total spending, will increase 10.4 percent. But the Abe administration has targeted the poorest of the nation for spending cuts. The core benefits of livelihood assistance for people on welfare will decrease 7.3 percent over three years — from August to minimize political risks in the July Upper House election. While the cut will have virtually no effect in restoring financial health, the lives of targeted families will be severely affected.

In a nutshell, the budget reads as if the old LDP has come back.