Japan Fiscal Discipline Back-Burnered amid Calls for Spending

Tokyo, Dec. 20 (Jiji Press)--The Japanese government has put fiscal
discipline on the back burner, as calls for spending increases are mounting
due to a steep economic downturn.

The Finance Ministry Saturday presented a draft general-account
budget of a record 88.5 trillion yen for fiscal 2009, which marks the third
straight increase in an initial budget.
The ministry projected tax revenue to shrink 13.9 pct to 46,103
billion yen, the second-steepest drop on record, due to the sluggish
economy.
To help fill the wider gap, the government will rely heavily on
surplus reserves outside the general account. The reserves, accumulated
mainly at special budget accounts, are often referred to as "maizokin," or
buried treasure.
The government will procure 4 trillion yen by dipping into surplus
reserves at the special account for the fiscal investment and loan program.
This is an unusual, one-off measure devised to curb the issuance of
deficit-covering bonds, Finance Minister Shoichi Nakagawa told a news
conference after presenting the draft.
This maneuvering was highlighted in the government's effort to
achieve the target of curbing annual growth in social security costs by 220
billion yen, a symbol of fiscal reconstruction initiated by former Prime
Minister Junichiro Koizumi.
The government says it still holds on to the target, adopted in
Koizumi's economic and fiscal policy guidelines of 2006.
But the target's substance has been effectively lost after ruling
coalition lawmakers and even some cabinet members called for its abolition
to address challenges such as serious doctor shortages.
Of the 220 billion yen, the government secured 137 billion yen by
unwinding part of surplus reserves at the public pension account.
An additional 60 billion yen was set aside by reallocating part of
the planned one-trillion-yen special grants to be paid to municipalities
from road-related tax revenues.
The remaining 23 billion yen, which the government plans to save by
promoting the use of generic drugs, is the only portion achieved as a result
of real efforts to cut costs.
While the government's reliance on such surplus reserves is
increasing, the administration of Prime Minister Taro Aso faces increasing
requests for greater expenditures from ruling coalition lawmakers amid the
worsening economic situation.
The dominant Liberal Democratic Party is considering an idea of
spending 10 trillion yen over three years to bolster the country's job
market.
To put a halt to such a proposal, the draft budget calls for a
one-trillion-yen emergency fund whose use has not been decided.
But the fund is problematic because it can be utilized without
deliberations at the Diet, or parliament.
Amid ever-increasing calls for spending increases, the government
may have to weaken its fiscal discipline further even at a time it faces
even greater difficulties reaching its target of achieving a primary budget
surplus in fiscal 2011.
The draft budget shows the country's primary budget balance will
deteriorate to a deficit of 13 trillion yen in fiscal 2009, going back to
where the 2006 economic and fiscal policy guidelines were set.