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Saturday, Dec. 26, 2009
Budget big but little in remedial terms
The all-time high fiscal 2010 budget draft approved Friday casts considerable doubt on whether the country can sustain its finances or if through such spending it can buy its way out of the economic slump, experts warn.
With the ballooning public debt and sharp fall in tax revenues, Finance Minister Hirohisa Fujii admitted Friday the government worked really hard to secure revenue sources for the fiscal 2010 budget but had to tap reserves in special accounts.
"Maizokin" (cash reserves in special accounts) have almost run out, Fujii told reporters after the Cabinet adopted the fiscal 2010 budget.
Masaru Takagi, a professor of politics and economics at Meiji University, said most expenditures should ideally be funded by tax revenues. The government will not be able to continue tapping nontax revenues, including reserves at special accounts, in the future because they will be exhausted in the next fiscal year, he warned.
For fiscal 2010, the general account budget will balloon to a record ¥92.3 trillion, but the budget is financed heavily by bond issuances. Revenues from bonds will surge to a record ¥44.3 trillion from ¥33.3 trillion in fiscal 2009, surpassing the projected ¥37.4 trillion in 2010 tax revenues. Meanwhile, nontax revenues will rise to a record ¥10.6 trillion.
Takagi said the nascent Democratic Party of Japan-led government should have cut more wasteful spending, as expected by voters.
For fiscal 2010, the government said it could trim around ¥1 trillion after reviewing wasteful spending, although it had earlier expected to cut ¥3 trillion or more from the ¥95 trillion in ministries' budgetary requests, also an all-time high.
Kyohei Morita, chief economist at Barclays Capital Japan, expressed concern over growing social security expenditures as more seniors start to receive public pensions.
Under the fiscal 2010 budget, spending for social security will surge almost 10 percent from the current fiscal year to ¥27.3 trillion. This will account for more than half of the general expenditures.
"Rebuilding the finances will be extremely difficult," Morita said.
The current weak economy is also casting a shadow over the nation's fiscal health.
Meiji University's Takagi say additional stimulus measures can be expected in fiscal 2010, and government bond issues are likely to further increase and can even exceed the current fiscal year's record level of ¥53.5 trillion.
On the other hand, tax revenues will fall as the economy worsens, Takagi said.
"As tax revenues plunge further, it is possible they will fall way short," Takagi said.
To find sustainable revenue sources, economists are floating a consumption tax hike.
During news conferences Friday, Prime Minister Yukio Hatoyama and Finance Minister Fujii, however, showed reluctance to consider this option without first eliminating wasteful state spending.
Barclays' Morita said the government should clarify when it plans to raise the consumption tax to prevent fiscal deficits from ballooning further. Such a tax hike will be a hard sell to voters.
With high unemployment and concerns over the future of the public pension system, Morita said the proposed budget itself will probably be of little help for companies and households.
Morita predicted the economy will recover in the next fiscal year, but that will be due to strong exports to Asia, not from government fiscal measures.