The government has adopted a basic policy for the fiscal 2009 budget compilation. It will maintain budget caps introduced in 2006 by the Koizumi administration, which include a 3-percent annual cut in public-works spending and a ¥220 billion reduction each year in the natural growth of social security spending. But it also says that it will flexibly take drastic measures to cope with the worsening economic situation. This is reasonable and understandable since Japan’s gross domestic product contracted for two consecutive quarters and the employment situation is deteriorating, especially for temporary workers.
But the message from the government is confusing because Prime Minister Taro Aso has failed to set down a convincing guiding principle for the budget. It seems to be saying that it will stick to the policy line in place since the Koizumi administration to restrain the budget growth, but will also pursue a big-spending policy.
Some ruling lawmakers call for spending ¥30 trillion over the coming three years outside the normal budget. Unless Mr. Aso sets down a clear guideline for the flexible, drastic measures mentioned by the basic budget policy, a large sum of money could be spent on meaningless projects aimed at winning votes.
In real terms, the budget policy is a departure from the policy line of placing priority on the state’s financial reconstruction. But the fact that the government is trying to depart from it without giving a clear explanation shows that the decision-making process in the government and ruling bloc is in a state of confusion and that Mr. Aso’s thinking is flawed. This kind of situation could have an adverse effect, especially given that the economy is in trouble.
The government must come up with additional sources of revenue since fiscal 2008 tax revenues are expected to decline by ¥6 to ¥7 trillion from the original estimate. It should prioritize spending, focusing on bettering people’s lives by improving education, raising the quality of medical care, and initiating useful construction projects such as burying power-lines underground and building sidewalks.
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