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Saturday, Oct. 17, 2009

News photo
Good morning's work: Cabinet ministers chat before their meeting Friday morning, when they endorsed the suspension of steps worth ¥2.93 trillion allocated for the extra budget for fiscal 2009, crafted by the previous government. From left to right: Finance Minister Hirohisa Fujii, Foreign Minister Katsuya Okada, financial services minister Shizuka Kamei, Prime Minister Yukio Hatoyama, Vice Prime Minister Naoto Kan, consumer affairs minister Mizuho Fukushima and land minister Seiji Maehara. KYODO

ANALYSIS

DPJ takes aim at public works


Staff writer

Friday's budgetary requests from ministries for the next fiscal year and the ¥2.9 trillion the government recovered from this year's extra budget reflect the Democratic Party of Japan's strong resolve to redistribute funds from public works projects to the pockets of citizens to boost domestic demand, analysts say.

The biggest target of the DPJ was the Ministry of Land, Infrastructure, Transport and Tourism, which oversees public works projects nationwide. The ¥917 billion slashed was the biggest figure among ministries.

Meanwhile, in the fiscal 2010 budgetary requests, ministries asked for budgets to cover child-rearing allowances, free public high schools and toll-free expressways — all pledged in the party's campaign platform for the August Lower House election.

"This reviewing process is epoch-making," said Chief Cabinet Secretary Hirofumi Hirano in a news conference.

During the election campaign, the DPJ pledged to cut wasteful spending, including a controversial project to build a state-run "animation pantheon," or "manga" (comics) museum, and a fund for helping bureaucrats parachute to government-affiliated organizations, a corruption-prone practice known as "amakudari."

In overhauling the extra budget, the DPJ-led government decided to drop the manga museum project championed by former Prime Minister Taro Aso of the ousted Liberal Democratic Party-led administration and halve amakudari-linked spending.

Analysts also welcomed Prime Minister Yukio Hatoyama's leadership in coming up with nearly ¥3 trillion in financial resources from the extra budget by cancelling some 365 projects.

"He is doing what the manifesto pledged to do," said Minoru Nogimori, an economist at Nomura Securities Co.

Under the Hatoyama administration, politicians, not bureaucrats, are taking control of the decision-making processes, Nogimori said.

But some fear the Hatoyama administration is being too zealous in carrying out its pledges.

"The ruling party believes that strictly implementing policies it has pledged will be a plus for them in next year's Upper House election," said Norihiko Narita, Surugadai University president and professor of political science.

In a Kyodo survey conducted just after Hatoyama took office last month, 72 percent of the respondents supported the new administration.

But if Hatoyama fails to deliver on the promises, the ruling coalition risks losing its majority in the Upper House in next summer's election, which would lead once again to a divided Diet like the one in place before the Aug. 30 poll.

So far, Hatoyama seems to have cleared the hurdles, but many lie ahead.

For example, the roles of the National Strategy Office, the administrative reform team and the Finance Ministry have in drafting the budget are still unclear, leading to confusion about which body has the final say.

Narita pointed out that the National Strategy Office's jurisdiction still overlaps with other government bodies.

Another concern is how the new budget layout will affect the economy.

Economists point out that it may have no effect, or even a slightly negative effect, because households finding themselves with additional cash will simply save the money instead of spending it.

Nogimori of Nomura said cuts in public works projects will have a negative effect because such projects provide quick economic lift.

Nogimori predicted the economy will decline from around yearend as the government's earlier stimulus measures lose their impact, while the recovery in corporate spending and employment are unlikely to come until around the latter half of next year as exports are expected to slow.

But a more urgent issue is whether the government will be forced to increase the issuance of new bonds to fund its budgets amid the expected fall in tax revenues due to the recession.

Senior Vice Finance Minister Yoshihiko Noda said Friday the government may need to increase its bond issuance to cover the tax revenue fall, which may drop more than ¥6 trillion from the estimated ¥46.1 trillion for this fiscal year.

"There is a possibility that the tax revenue for fiscal 2009 will be lower than ¥40 trillion," Noda told reporters.

"Since this tax revenue fall is due to the impact of worldwide recession, it will be inevitable to increase public bond issuance to offset the tax revenue fall when compiling the second supplementary (budget)," he said.

Analysts echoed Noda's view. "If the economy sees another downfall, it will be inevitable" for the government to increase debt, Nogimori said.



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