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10 years on, Osaka fiscal reform started by Toru Hashimoto remains unfinished

JIJI

Since Toru Hashimoto was elected Osaka governor in January 2008 and subsequently launched a reform drive, the prefecture has turned its debt-heavy public finances around to achieve budget surpluses.

Some experts, however, downplay the recovery as superficial and suggest there is a long way to go before real fiscal health is restored to Osaka.

A firebrand former lawyer, Hashimoto tackled fiscal reconstruction as the first order of business when he became governor. Burdened by debt that had been issued to finance big public works projects, Osaka Prefecture suffered a budget deficit for 10 consecutive years starting in fiscal 1998.

Under Hashimoto’s predecessor, Fusae Ota, who served two terms from 2000, the prefectural government had to dip into its “sinking fund,” a pool of money set aside for repaying debt, to make up for shortfalls when compiling annual budgets. Ichiro Matsui, the current governor, once called the move a “fiscal no-no.”

Taking office amid such dire straits, Hashimoto, known for his sharp tongue, told senior officials of the prefectural government on his first day: “You are employees of a bankrupt company.”

Hashimoto declared a state of fiscal emergency and started reform programs, including cuts in subsidies and personnel costs. The prefecture produced a budget surplus for nine straight years through fiscal 2016. The reform benefits will reach an estimated total of ¥585.3 billion as of the end of fiscal 2017, which comes at the end of next month.

The number of prefectural workers was reduced from 10,298 in fiscal 2008 to 7,855 in fiscal 2017, while the prefectural assembly was pared down to 88 seats from 109.

Hashimoto, who stepped down as governor and was elected mayor of the prefecture’s capital in 2011, resigned from politics in 2015 after his metropolis plan, an ambitious realignment proposal for the city of Osaka aimed at raising efficiency in local administrative operations, was rejected by voters in a closely watched referendum.

His reformist policy line has been taken over by Nippon Ishin no Kai, the political party headed by Matsui, the current governor. The party, which originated as a regional political party founded by Hashimoto, is pushing ahead with “biting” administrative reforms.

Despite the budget surpluses, the effective proportion of the prefecture’s income used for debt repayment has remained high, standing at 18.4 percent in fiscal 2016. Due to the high share, Osaka needs to gain the internal affairs minister’s approval for issuing new debt to raise funds.

“The figure has worsened due to the heavy burden of repaying past prefectural debt and shortfalls of reserves in the debt consolidation fund,” a senior prefectural official said.

“The surplus is numerical magic,” said Shin Takayama, a professor at Osaka Kyoiku University and a specialist in finance. “The budget surplus came at the expense of a debt consolidation fund that has not been accumulated properly. We can’t be proud of it as fiscal reconstruction.”

Steady progress in fiscal reconstruction requires growth in tax revenues. Due to a continuing outflow of businesses, however, Osaka Prefecture’s revenue from two corporate taxes — the corporate inhabitant tax and corporate enterprise tax — has plunged by half, from ¥835.2 billion in fiscal 1989 to ¥408 billion in fiscal 2016.

“An economic structure that supports tax revenue growth is not in place,” former Gov. Ota said.

Ota is critical of the economic policy of the 10-year-old prefectural rule under Hashimoto and like-minded politicians of what is now Nippon Ishin. “It was a lost decade,” she said. “Debt has increased.”

To spark an increase in tax revenue, Matsui is placing hope on gaining approval for a proposal to set up an integrated resort featuring a casino in the city of Osaka and winning a bid to host the 2025 World Expo. But some warn that the economic benefits of the casino resort will not be large.