Japanese government has tough budget choices to face

TOKYO – Now all the budgetary requests by government entities have been made, the Cabinet will face two choices: either turn a blind eye to the nation’s huge debt and place priority on realizing the ruling bloc’s campaign pledges, or avoid further issuance of government bonds and give up on certain campaign pledges.

The government of Prime Minister Yukio Hatoyama effectively bloated the total amount of budgetary requests to realize campaign pledges made for the Aug. 30 general election. The amount, announced Friday by the Finance Ministry, reached a record high of more than 95 trillion yen.

The government will have to issue a huge amount of bonds unless it makes drastic cuts in the requested budget, as fiscal 2009 tax revenue likely will fall below 40 trillion yen.

Finance Minister Hirohisa Fujii expressed displeasure about the result of the budgetary request.

“It’s not good as it is,” Fujii told reporters after he met Hatoyama at the Prime Minister’s Office on Friday evening. “When we were on the opposition side, we thought [about budgetary requests] that, ‘something’s wrong here’ and ‘something’s wrong there.’ We have to do this [dealing with a budget] with that thinking in mind.”

The reason for the bloated budget is ministries refused to abolish or cut back on existing measures while also trying to incorporate expenses needed for policies announced in campaign pledges. Though the Construction and Transport Ministry slashed 14 percent, or 815.7 billion yen, of expenses for public works projects from the amount of the fiscal 2009 initial budget, only 1.31 trillion yen was reduced in total.

The government will undoubtedly have a hard time compiling its fiscal 2010 budget blueprint, as it will be forced to issue a huge amount of government bonds if it fails to successfully review the budget requests.

It is not only the 95 trillion yen that needs to be re-examined; there also are requests for which no amount was presented at the time of the budgetary request but which will emerge during the budget compilation process.

Though it is not clear how much the amount will increase, a request by the Internal Affairs and Communications Ministry is expected to increase the amount of the distribution of local allocation tax by about 1.15 trillion yen, and 11 projects, including those related to medicine, asked by the Health, Labor and Welfare Ministry, is seen to need nearly 2 trillion yen.

The Environment Ministry asked for money for projects to lower greenhouse gas emissions. There also is a new scholarship for university students requested by the Education, Science and Technology Ministry. In total, the amount to be re-examined is expected to exceed at least 98 trillion yen.

On the other hand, tax revenue, which comprises most of the government’s income, is expected to drastically decrease this fiscal year. It had been calculated to reach 46 trillion yen, but it will certainly fall below this as the amounts pulled from the corporate tax and the consumption tax are expected to fall due to the recession.

Also, the government is planning some tax cuts, including the abolition of the provisional tax rates for gasoline and other road-related taxes and cuts in corporate taxes for small and midsize companies.

In fact, tax revenue is expected to fall below 40 trillion yen for the first time in 25 years.

If the government can get tax revenue of only 40 trillion yen when it needs to feed a 98 trillion yen budget, it will run short by 40 trillion yen to 50 trillion yen, even when factoring in smaller sources of revenue. The government plans to limit the amount of new bond issuance to 44 trillion yen or less in fiscal 2010, in both the fiscal 2009 initial budget and supplementary budgets.

To achieve this target, the government will have to drastically cut back on its projects.

Hatoyama has repeatedly said in the past if the budget is reworked, financial sources can be found without issuing more government bonds and his government would not increase the debt.

However, his remarks of late have proved to be inconsistent. On Wednesday, he said it might be inevitable to issue more government bonds.
“We have to think of it in consideration of an expected fall in tax revenue,” he said.

If the government fails to cut more existing projects, it will have to either issue more government bonds or postpone the implementation of its campaign pledges.

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