As the Finance Ministry has closed the invitation for budget requests for fiscal 2014 from various government ministries and agencies, it appears that the government as a whole is not serious enough about restoring financial health to the state coffers. The enactment of a law to raise the consumption tax was ostensibly done to facilitate the nation’s financial reconstruction. But the fiscal 2014 budget requests will only intensify the public’s impression that the Liberal Democratic Party has not learned from its past policy of relying on pork-barrel projects to boost growth, which caused the national debt to soar.
The budget requests for the general account have reached some ¥99.2 trillion, topping the past record of some ¥98.4 trillion for fiscal 2012. If budget requests for special account budgets for projects related to 3/11 disaster reconstruction are included, total budget requests top ¥100 trillion.
Because the government postponed the decision on whether to raise the consumption tax in April 2014 to this fall, it could not estimate total tax revenues for fiscal 2014. Thus it failed to show the ceiling for total spending. This was an unusual situation. Although the government called for reducing discretionary spending — such as public works projects — by 10 percent from the fiscal 2013 budget, it created loopholes in the form of special spending for priority policies, such as economic growth programs pushed by Prime Minister Shinzo Abe as part of his economic policy.
By taking advantage of the Abe administration’s policy of making the nation resilient to major disasters, the land, infrastructure and transport ministry asked for an allotment of ¥5.859 trillion, an increase of 16.3 percent from the initial fiscal 2013 budget. The farm ministry’s request increased by 13.6 percent to ¥2.609 trillion and a portion of this funding is earmarked for farmland improvement — a sure vote-winner. Although the feasibility of Japan’s nuclear fuel cycle is nearly nil, the education and science ministry called for ¥36.8 billion for research and development for the project, up from ¥33.3 billion in the initial fiscal 2013 budget. It asked for ¥19.5 billion for maintenance of the inoperative Monju fast breeder reactor, up from ¥17.4 billion in the initial fiscal 2013 budget. The health and welfare ministry demanded a record ¥30.056 trillion, an increase of 3.8 percent, including an automatic increase of ¥1 trillion for social welfare.
The government’s outstanding debts topped ¥1,000 trillion by the end of June, reaching ¥1,008 trillion. If the Abe administration thinks that its economic policy will buoy the economy and secure sufficient tax revenues to end the nation’s deficit financing, it is being far too optimistic. It should strictly review individual budget requests and eliminate all wasteful uses of public money.
If market players think that the Abe administration is not seriously pursuing financial discipline, they will sell Japanese government bonds, thus causing interest rates to rise. This would have a devastating effect on the Japanese economy. The Abe government must act accordingly to avoid such an outcome.