With Prime Minister Taro Aso’s government and ruling coalition lawmakers busy compiling a second economic stimulus package by the end of this month, the latest political catchphrase has become “Kasumigaseki maizokin,” or buried funds in the Kasumigaseki district, the seat of the central government.
The phrase gives the impression there is a mythical buried treasure that can be tapped by the cash-strapped government. But few can explain what it actually is and why it suddenly became the talk of Tokyo.
Following are questions and answers concerning the buried funds:
What are Kasumigaseki maizokin?
They are cash reserves accumulated in 21 special government accounts.
The government has three types of budgets — the general account budget, the special account budget, and the “zaito” fiscal investment and loan programs budget.
The general account budget is used for policy-related expenses, including bond issuance, local government subsidies and social welfare costs, while the zaito budget is used to invest in and extend loans to long-term projects, including road construction.
The special account budget is used for specific government projects, using revenues closely related to that project. For instance, the government uses the gasoline and coal tax to develop new oil and gas fields under a special energy policies account.
Reserves are set aside in each of these 21 special accounts, which amounted to ¥198 trillion as of the end of March.
About ¥138 trillion was reserved for a special account for the nation’s pension system, ¥17 trillion for a special account to ensure the stability of the foreign-exchange market and another ¥10 trillion under a special account managing government bonds.
Does that mean the government has ¥198 trillion in financial resources it can use for any purpose?
Not necessarily. The reserves exist for a reason. A large portion is used for pension payments, insurance payments and to repay government bonds.
But politicians claim some of the reserves are too big for their purposes.
When Aso was campaigning for the Liberal Democratic Party presidency, he estimated that about ¥40 trillion of such reserves could be shifted to the general account budget to be used for other purposes.
Politicians are especially targeting the ¥17 trillion zaito special account reserves and another ¥17 trillion in reserves set aside under the foreign-exchange special account.
The zaito special account budget is used to extend long-term fixed interest rate loans to government-affiliated organizations. The reserves are set aside to hedge the risk of future interest rate hikes.
As for the reserves of the foreign-exchange special account, the Finance Ministry claims they are necessary to cover the losses incurred when the yen climbs against the dollar.
But the recent strong yen trend is casting doubt on whether the government can actually tap into those reserves.
Finance Minister Shoichi Nakagawa told the Diet earlier this month the government will incur about ¥19 trillion in unrealized losses on its foreign currency assets — the same amount it currently has in its reserves — if the yen climbs to 99 against the dollar.
Why have these special account reserves suddenly gained attention?
One reason is many feel a general election may be looming.
The U.S. financial crisis triggered by the bankruptcy of investment bank Lehman Brothers Holdings Inc. in September caused stock markets around the world to nosedive and weakened the global economy.
Japan didn’t emerge unscathed, as the Tokyo Stock Exchange’s Nikkei average plunged and the economy fell further toward recession.
Aso wants to impress voters with the economic stimulus packages. But the question is, how will he come up with the resources to finance them? This fiscal year’s corporate tax revenues will inevitably decline, while social welfare costs continue to balloon.
Aso doesn’t want to talk about raising the consumption tax before a general election and it may in any case be a few years before the government can actually hike the rate.
That is why politicians have suddenly started talking about buried funds.