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Friday, Sep. 7, 2012
Lure of public works spending
As the next Lower House election is expected to take place in the near future, proposals are gaining momentum among political parties to inject large amounts of government money for public works projects.
The government and political parties must prioritize public works projects from the viewpoint of preventing or minimizing damage from future massive disasters. They must take utmost care not to waste limited funds.
The tripartite agreement among the Democratic Party of Japan, the Liberal Democratic Party and Komeito that led to the enactment of a law to increase the consumption tax rate from fiscal 2014 includes a supplementary provision that focuses on providing funds for economic growth as well as for the prevention and lessening of damage from disasters, since flexible treatment in the fiscal front has become possible.
Although the consumption tax rate hike is expected to bring in more tax revenue, it is not a time to loosen fiscal discipline and greatly expand government spending. Under the law, the consumption tax rate will be raised from the current 5 percent to 8 percent from April 2014 and to 10 percent from October 2015.
The LDP in June submitted a bill to the Diet to strengthen national disaster preparedness. Its manifesto for the next Lower House election will call for spending ¥200 trillion, including funds from the private sector, for disaster prevention for the coming 10 years. The centerpieces of the LDP plan will be quake-proof projects in the Tokyo, Osaka and Nagoya areas and improve the nation's expressways.
Komeito proposes spending ¥100 trillion for infrastructure improvement for the coming 10 years. The government has revived the Yanba Dam construction project in Gunma Prefecture and the construction of three sections of new planned Shinkansen superexpress railways.
The political parties should work out convincing plans to raise necessary funds. The government should have the courage to stop ongoing public works projects if they are found to lack economic rationality.
Japan's public works projects peaked in fiscal 1997 with ¥9.7 trillion in spending. By fiscal 2011, the spending on public works projects had dwindled to just ¥5 trillion.
Both the government and political parties need to realize the era of large-scale national public works projects is gone as high economic growth is less likely these days.
In this age of low economic growth, it is all the more important for both the government and political parties to rationally determine which new public works projects are really needed and which existing public works projects urgently require repairs to increase the safety of people's lives.
They must realize that just spraying money across the nation for public works projects will not necessarily improve people's lives.