Big changes to budget process expected under DPJ


Ending more than half a century of almost unbroken Liberal Democratic Party rule, the administration led by the Democratic Party of Japan that was formed Wednesday is expected to bring major changes to the nation’s governance.

Chief among them is how the new government will compile its budget for fiscal 2010, which starts next April.

In sharp contrast to the previous bottom-up approach, the DPJ-led government is expected to introduce a top-down method with politicians taking the initiative.

“Under LDP administrations, it is certain that until now the system had been centered on something like a bottom-up (decision-making process),” said Jun Iio, a political science professor at the National Graduate Institute for Policy Studies.

The DPJ claims that the final budget has been a jumble of funding requests made by the various ministries, resulting in wasteful spending.

Until now, each ministry compiled its own budgetary requests for the following fiscal year between June and August before submitting them to the Finance Ministry at the end of August.

The Finance Ministry then scrutinized them from October to December and compiled the budget around Dec. 20. The Cabinet gave final approval days later.

Vowing to change the entire process, the DPJ said from now on it will be politicians who take the lead in compiling budgets.

“Under the DPJ administration, politicians who represent the people will compile the budget,” the party said in its policy plan announced this summer.

The DPJ plans to create a policymaking body under the prime minister called the National Strategy Bureau, headed by DPJ deputy chief Naoto Kan.

The bureau is expected to be made up of 10 lawmakers and 10 scholars and experts from the private sector.

They will decide which policies and projects the government will prioritize.

Its authority may even extend to foreign policy and personnel decisions.

“(From now on,) decision-making regarding policies will be initiated by politicians, so I want you (bureaucrats) to change your way of thinking,” Kan was quoted as telling vice transport minister Hiroaki Taniguchi earlier this month.

The bureau is initially expected to focus on revising the fiscal 2009 extra budget and making progress in putting together the budget for the next fiscal year.

Some ministries were quick to respond. The Land, Infrastructure, Transport and Tourism Ministry said Sept. 3 it will put off accepting tenders for the Yamba Dam, a major construction project in Gunma Prefecture the DPJ vowed during the campaign to halt.

Despite the DPJ’s plan to set up the bureau, it remains to be seen what kind of legal powers it will have and exactly what Kan’s position will be in the budget process.

Main DPJ budget-cutting steps

Public works projects the Democratic Party of Japan has pledged to suspend:

• Construction of the Kawabe River Dam in Kumamoto Prefecture (total project cost: ¥265 billion)

• Yamba Dam in Gunma Prefecture (total project cost: ¥460 billion)

Projects and subsidies ministries have decided to freeze:

• Tenders suspended for the Yamba Dam (land ministry)

• Subsidies frozen for agricultural landowners who lend land to designated farmers to enhance farming efficiency (¥297.9 billion, agriculture ministry)

• Subsidies frozen for lumber firms aimed at covering the cost of thinning forests or constructing facilities using such lumber to create employment in the forestry and lumber industries (¥123.8 billion, agriculture ministry)

• Subsidies frozen for rice farmers who switch to wheat and soybeans (¥110 billion, agriculture ministry)

• Subsidies frozen for installation of solar panels in agricultural and fishery businesses, and utilization of biomass energy resources (¥19.3 billion, agriculture ministry)

The vagueness surrounding the new administration’s key policymaking body is making some senior bureaucrats in the Finance Ministry anxious.

“I do not quite understand whether a part of the prime minister’s authority will be divided (with the new bureau) and whether the body will have authority to give directions or instructions to each ministry,” one bureaucrat said.

“The DPJ has not yet instructed us on the new system and how we should proceed with our work,” the official said.

“We are very anxious and have been imagining (how we will work under the new administration) and coming up with hypotheses based on reading newspapers.”

Bureaucrats are also expressing frustration because time is running out as the end of the year approaches, their traditional target date for compiling the next fiscal year’s budget.

Although Finance Ministry bureaucrats face uncertainty, they welcomed the fact that former finance bureaucrat Hirohisa Fujii has been appointed their new boss.

Before entering politics, Fujii, 77, worked at the Finance Ministry for 21 years. He also served as finance minister for two administrations in the early 1990s.

“We can expect him to share the basic fiscal sense (with ministry bureaucrats) as he experienced being the minister a long time ago and had originally been one of the senior officials (of the ministry),” another senior official said. “Since senior officials, including myself, are acquainted with him to some degree, we find him easy to talk with.”

Meanwhile, Shizuka Kamei, leader of Kokumin Shinto (People’s New Party), was appointed financial services minister. The Finance Ministry officials said they hope Fujii and Kamei communicate well in handling their portfolios.

However, many hurdles still need to be overcome in compiling the budget for the next fiscal year.

The biggest question, one ministry official pointed out, is how the government will come up with necessary resources to compile the budget as tax revenues are plunging due to the recession. A tax hike seems inconceivable given the severe economic environment, while there is huge pressure to issue more government bonds.

The DPJ plans to find ¥7.1 trillion to fund its election pledges in fiscal 2010.

Whether the government can achieve this will depend on how much funding it can procure by the end of November by using the special account reserves and cutting down expenditures by eliminating wasteful spending.

“Each ministry will have to cut down its base budget, and policies pledged by the DPJ will need to be added to (the entire budget),” the official said. “Since that requires so much work, it will be a game of time.”

No intervention: Fujii

Kyodo News

Hirohisa Fujii, the incoming finance minister, said before his appointment Wednesday he is against intervening in the currency market given the current economic circumstances.

“I don’t believe the currency market is in a wild swing. I am opposed to intervening when the market is calm,” Fujii said at the Diet.

He also suggested that any intervention would not be effective unless currency authorities act in unison.

“We must find ways to address the situation if the currency market becomes volatile by the influx of speculative funds, but the current situation does not reflect such a condition,” said the veteran Democratic Party of Japan member of the Lower House.

Fujii, who long served as a Finance Ministry bureaucrat before becoming a politician, added that opposing a stronger yen for the sake of Japanese exporters is a one-sided idea and that there are positive aspects of the yen’s appreciation against other currencies, such as lower prices for imported goods.

The last time the Finance Ministry stepped into currency markets via the Bank of Japan was in March 2004.