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Thursday, Dec. 25, 2008

Cabinet OKs monster '09 budget

Staff writer

The Cabinet on Wednesday approved an ¥88.55 trillion budget for fiscal 2009 that puts priority on sustaining the economy, but Japan's biggest spending plan in history drew tepid reactions from several economists.

Prime Minister Taro Aso said the record-high budget was needed to protect jobs with drastic measures as the recession takes hold.

"Extraordinary measures are needed for an abnormal economy," Aso said.

The budget, which faces a Diet vote in January, is 6.6 percent higher than the initial fiscal 2008 budget and raises new government bond issuance to ¥33.3 trillion, up a sharp ¥7.9 trillion from the previous year. It is also the first initial budget to exceed the ¥30 trillion mark in four years.

"By taking drastic countermeasures, we are aiming to be the first to get out of this global downturn," Aso said.

Koichi Haji, chief economist at NLI Research Institute, praised the government's efforts to aim for fiscal reconstruction in the long run while stimulating the economy.

Nontax revenues for 2009 will reach ¥9.15 trillion, or more than double the ¥4.16 trillion in the 2008 budget. The revenues will come partly from ¥4.24 trillion buried in the government's hazy fiscal loan and investment accounts.

Haji praised some of the measures as stimulative.

The government also set aside a new reserve of ¥1 trillion to deal with other potential economic emergencies.

Social security spending will jump 14 percent from the previous year to ¥24.83 trillion, including assistance to help irregular workers get jobs and companies to maintain employment.

However, Haji said the overall scale still lacks the size needed for the economy to recover. "This budget is a little powerless to lead the Japanese economy to recovery," he said.

Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management, was also critical.

The government is earmarking ¥333 billion for high-priority issues, including social security, regional economic revitalization, improvement of food self-sufficiency, education, and research and development.

"The 2009 budget and the second supplementary budget for 2008 are sporadic, spend money very indiscriminately and don't do anything to boost the real economy," Muto said.

He also said Aso's goal of Japan being the first economy to recover makes little sense.

The economic deterioration originated in the United States, and thus the U.S. must recover before Japan can, Muto said. "It is theoretically strange to say Japan will cyclically recover first."

The Cabinet also approved a midterm program to build sustainable social security and to secure stable fiscal resources for it. The program says the government will take necessary legislative measures to start fundamental tax reforms from fiscal 2011, including raising the consumption tax.

Faced with massive fiscal deficits and a rapidly graying population, Haji said a consumption tax hike is inevitable but possibly unviable as the economy continues to stay sluggish.

Muto also said the expression is ambiguous because he sees it as the culmination of compromises from within the ruling coalition.

"It was better for the government to clarify that it will make plans and pass the bill in fiscal 2010, and raise the consumption tax from April 2011," Muto said.

To bring the economy back to a recovery track, economists say there are several things the government and central bank must do.

Haji said economic structural reforms, revitalization of the corporate sector, and lowering corporate taxes won't be enough for the economy to recover on a sustainable basis.

Stimulating domestic consumption is key, he stressed.

Muto said the government should spend taxpayer money for necessary infrastructure that will strengthen the country's competitiveness.

These include expanding Tokyo's Haneda airport, building up ports and environment-related projects.

Muto also pointed out that the budget was merely a result of piling up requests from each of the ministry's bureaucrats and getting the politicians to approve them.

It would be best if bureaucrats did not decide the main framework and instead heed what lawmakers say, Muto said.

"What is happening now is the opposite," he said.

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The Japan Times

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