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Govt must abandon DPJ manifesto fiscal pledges
The fiscal 2010 budget has cleared the Diet.
Though the budget for the new fiscal year beginning April 1 contains some aspects that are extremely questionable, the spending plan was enacted as the government had drafted at the pace insisted by the ruling parties without in-depth discussions at both houses of the Diet. We find this regrettable.
The general account budget for fiscal 2010 has swollen to 92 trillion yen due to the incorporation of a number of costly policies in line with the Democratic Party of Japan's election manifesto pledges.
It is also apparent that the government's decision to stop the practice of initially working from budget request guidelines, which traditionally set the parameters for budget outlays, contributed to the increase in fiscal spending.
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Record bond issuance risks
Because tax revenues are projected to decrease to about 37 trillion yen, the government will be forced to make ends meet by issuing 44 trillion yen worth of government bonds, a record scale for an administration's initial budget.
The situation certainly is extraordinary given the fact this will be the first time the government would issue bonds beyond the amount of tax revenues in an initial budget since the chaotic era following World War II.
The fiscal 2010 budget has just passed the Diet, but concerns already have been expressed in various circles that it would be barely possible to draft the fiscal 2011 budget if things stand as they do now.
This is because the government is poised to continue its course of expanding spending in fiscal 2011 although there is no prospect for increased tax revenues. If this policy remains unchanged, the government will have to depend more heavily on bond issuance, which in turn might deprive the Japanese economy of credibility in the market.
As a matter of fact, overseas credit-rating agencies recently have suggested the possibility of downgrading Japanese government bonds.
Given this situation, the Cabinet of Prime Minister Yukio Hatoyama must reassess the country's severe fiscal condition, abandon its fixation on the DPJ political manifesto and exert efforts to restore fiscal health.
In the fiscal 2010 budget, social security expenditures, at about 27 trillion yen, comprise the largest appropriation and account for more than half of the budget. An expected further increase in social security costs likely will be the factor that will most contribute to a rise in expenditures in fiscal 2011.
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Growing social security costs
Among social security costs, the focus of attention will be the child-rearing allowance program. In fiscal 2010, a monthly allowance of 13,000 yen per child--half of the eventual full amount of 26,000 yen--will be provided starting in June to families with children up to age 15, which will require the government to spend a total of 2.3 trillion yen.
When the allowance is disbursed in full starting in fiscal 2011, the government will need revenue sources totaling 5.3 trillion yen.
Combined with additional spending of 2.5 trillion yen derived from the government's taking on 50 percent of the basic pension burden, along with the natural increase in social security spending resulting from the nation's aging population and declining birthrate, the government will have to set aside as much as 6 trillion yen just for social security costs.
Despite such severe fiscal conditions, the government will become unable to rely on 10 trillion yen in nontax revenues listed in the fiscal 2010 budget because the so-called buried treasure, including funds deposited in the special account for government loan and investment programs, is running out.
Taking into account the fact that the government managed to set aside only 700 billion yen through its screening of wasteful budget spending last year, it is a "pie in the sky" idea that necessary fiscal resources can be secured by cutting down on wasteful expenditures.
If the government is neither able to secure sufficient revenues or weed out wasteful spending, it will have no other choice than to drastically review its pork-barrel policies based on the DPJ manifesto.
It also will be necessary for the government to present measures as soon as possible to achieve healthy public finances in the mid term, such as through a consumption tax hike.
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