Japan’s Record Budget Plan Should Not Spoke Fiscal Health Debate

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Japan’s record-breaking fiscal plan for FY2022 has laid bare the urgent need for real discussions on how to restore its debt-ridden finances, but the chances of seeing them soon seem very slim, at least until in the election of the House of Councilors scheduled for July. Next year.

The draft budget, approved by Prime Minister Fumio Kishida’s office on Friday, stands at 107.6 trillion yen ($ 940 billion), marking a record for the 10th consecutive year, amid deep fears that the government spends more during the year. from April thanks to supplementary budgets, as in recent years.

Yet politicians tend to be reluctant to put the issue of fiscal reconstruction in the spotlight, especially in the run-up to an election, as it reminds voters of the possibility of facing higher taxes.

“Prime Minister Kishida has avoided such a debate and should do the same for now,” said Yuichi Kodama, chief economist at the Meiji Yasuda Research Institute.

Approval of the initial budget plan came less than three months after Kishida took office and almost two months after the Liberal Democratic Party and its junior coalition partner Komeito retained a majority in the House of Representatives , the most powerful lower house of Parliament, in the general election.

“Mr. Kishida was originally said to be a person who emphasizes budgetary discipline. After the next upper house elections, there might not be national elections for a while, so I hope he will initiate political debates on how to secure financial resources if the decision the parties win. elections at the latest, ”Kodama said.

In Japan, upper house elections are held every three years to nominate half of the chamber for six-year terms, while lower house elections are held every four years, unless the prime minister do not dissolve it.

As the PLD pledged during the campaign for the October 31 general election, the government last month drew up a large-scale stimulus package to support the economy affected by COVID-19.

He then compiled a supplementary budget of 35.99 trillion yen for fiscal year 2021 earlier this month, including 22.06 trillion yen in new debt issuance.

Although the number of new COVID-19 cases has been at low levels in Japan in recent weeks, 18.61 trillion yen under the supplementary budget has been allocated to measures to curb the spread of the coronavirus and to help medical institutions.

Meanwhile, the supplementary budget included spending that didn’t seem urgent, and the size of the entire budget for this fiscal year ultimately totaled 142.60 billion yen, of which only 63.88 billion yen was expected to be funded by tax revenues.

“While trying to keep the size of an initial budget as small as possible, it has become an annual practice for each administration to form supplementary budgets to roll out their preferred policy measures,” said Takuya Hoshino, senior economist at Dai. -ichi Institute for Research on Life.

“This is one of the main reasons why it is easy for government spending to swell,” Hoshino said, noting that the finance ministry’s desire to keep the size of the initial annual budgets smaller is consistent. with that of the ruling coalition to come up with unique economic solutions. and social policies through supplementary budgets.

Japan’s public finance law limits the objective of formulating a supplementary budget to “particularly vital expenditure” caused by events occurring after the compilation of the original budget.

Hoshino believes the government’s view of the use of money is not smart enough, proposing that spending on long-term growth strategies such as decarbonization and digitization be included in budgets. initials.

“These expenditures should be planned on a multi-year basis,” he said, as this would help induce more investment from the private sector and companies will likely have an easier time developing business plans.

But if the government includes larger spending in initial budgets, it will become more difficult to meet the goal of putting its primary balance – tax revenue minus spending other than debt service charges – in the dark. ‘by fiscal year 2025.

As part of the 2022 fiscal budget, a primary deficit of 13.05 trillion yen is forecast. It will improve from the 20.36 trillion yen deficit in the original FY2021 budget, but even worse than the 9.63 trillion yen in red ink for FY2020.

The government has said it will examine the fallout from the coronavirus pandemic on Japan’s economy and finances, suggesting that achieving a primary surplus in fiscal 2025 in line with its target may be delayed.

However, Finance Minister Shunichi Suzuki told a press conference after Cabinet approval on Friday that the target did not need to be revised “at this stage”.

Hoshino believes that the government’s maintenance of the primary balance target will not lead to “wise fiscal spending,” as its investments for economic growth and its efforts to target a primary surplus will both be lukewarm.

Kodama takes a mixed view, saying, “No one can believe that a primary surplus is achievable, but the main meaning of maintaining this goal is to show that the government has the will to rebuild the country’s finances.”

“If withdrawn, it could give the impression that Japan has dropped the banner of fiscal consolidation,” he said.

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