Put fiscal health ahead of politics

Ballooning budget requests by ministries for fiscal 2015 total more than ¥100 trillion for the first time, raising serious doubts about the Abe administration’s commitment to fiscal discipline.

Government debt has swelled beyond ¥1,000 trillion, making Japan’s fiscal health the worst among industrialized economies. It would be unconscionable if the lavish budget requests were made because ministries were taking advantage of political pressures for more public spending to generate voter support ahead of the unified series of local elections next spring. Lawmakers and bureaucrats need to share a sense of crisis and substantially trim the amount by the time the fiscal 2015 draft budget is compiled by yearend.

General-account budget requests surged to a record ¥107.5 trillion, or about ¥6 trillion higher than the ¥95.9 trillion initially set aside for fiscal 2014. Prime Minister Shinzo Abe set aside a special quota of nearly ¥4 trillion on measures aimed at halting the nation’s population decline and shoring up regional economies outside major urban areas. The government, meanwhile, did not put a cap on budgetary requests since fiscal 2015 tax revenues could not be projected pending Abe’s decision later this year on whether to go ahead with the second stage of the consumption tax hike next year.

Total policy-related requests, including spending for social security, defense and public works projects, reached about ¥75.9 trillion, or roughly ¥3 trillion higher than in the fiscal 2014 budget, while debt-servicing expenses requested by the Finance Ministry rose 11 percent to a record ¥25.8 trillion.

True, social security expenses are expected to hit nearly ¥30 trillion with the graying of Japan’s population, and there will be necessary policy expenses to cope with the demographic woes, revitalize rural communities and beef up defense against natural disasters, but the budget requests reportedly include similar programs separately sought by different ministries and existing policies conveniently repackaged and renamed to fit the Abe administration’s agenda. There is no guarantee that the ministries, which tend to view expanding their budget as enhancing their turf interests, scrutinized the effectiveness of such programs before making the requests.

The tax hikes and the economic upturn will increase revenues for the government. Still, Japan continues to depend on government bonds each year for roughly 40 percent of its revenue. These debts need to be repaid by future generations.

The government has hiked the consumption tax to help pay for social security expenses and restore fiscal health. There is no room for anticipated revenue increases to be the pretext for relaxing fiscal discipline or pork-barrel spending.

The government has set a target of reducing its primary balance deficit relative to GDP in fiscal 2015 by half from the 2010 level and to achieve a primary balance — in which government’s tax revenue equals its expenses not including debt-servicing costs — by 2020. The government says it’s on course to achieve the first target provided that the consumption tax rate is hiked again to 10 percent in October 2015. Its latest estimate, though, shows that the government will incur an ¥11 trillion primary balance deficit as of 2020 even with a 10 percent consumption tax. What this means is that the government debts, already way more than double the nation’s gross domestic product, is projected to continue increasing.

The Abe administration should make sure that efforts to rebuild the nation’s fiscal health will not be pushed aside by its political agenda.