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Ho, ho, ho ... Budget 2004 here we
go
By Richard Hanson
TOKYO -
To hear it from the scrooges at the Japanese Ministry of
Finance's Budget Bureau, Santa Claus may as well be a
member of the ruling Liberal Democratic Party (LDP) -
always trying to give gifts at budget time, which just
happens to coincide with the year-end holiday season.
That would appear to be the case in the draft
budget for fiscal year 2004 (effective next April 1)
that was approved on the weekend by Prime Minister
Junichiro Koizumi's cabinet. On the face of it, the
coalition led by the LDP dashed the Budget Bureau's
plans to tighten up on some key nooks and crannies of
the government's debt-ridden finances.
These
include areas that would slash away at what are loosely
called "social welfare" items, the fastest-growing
expenses in most countries with growing numbers of
elderly citizens. Apparently, there will be no quick
action on public pension fund expenses and less progress
on sharing central government tax revenues with local
governments.
These issues, likely to be
postponed a year, figured prominently in political
platforms (dubbed manifestos) floated in a key general
election just held last month, in which the LDP won a
wobbly victory.
Koizumi is wary of irking voters
before next summer's Upper House election, when the
major opposition Democratic Party of Japan (DPJ) will
battle fiercely for seats.
Truth to tell, the
Finance Ministry doesn't appear all that concerned about
such setbacks. Indeed, the ministry seems to be more
confident about its policies and the prospects for the
economy than it has been in a long while. That
confidence is at least in part a result of its role in
helping the economy and the LDP over the past
year.
First, the scenario. Clearly, for the LDP,
a serious loss of seats in July is more threatening and
immediate than any projection that social-welfare
spending will more that double by the year 2025 to 176
trillion yen, sums that ordinary citizens have trouble
grasping. As it stands, the budget's projected deficit
next fiscal year will push the combined deficits of
local and central government to 719 trillion yen (US$6.7
trillion).
That figure is equal 143.6 percent of
Japan's annual gross domestic product. This is the
highest ratio among the so-called Group of Seven major
industrialized nations (Japan still has the
second-largest economy in the world). Such numbers tend
to obscure the fact that Japan has actually worked to
stem the growth of overall central government spending.
The budget knives are cutting fewer items next
year, but they are cutting in areas some surprising
areas. Finance Minister Sadakazu Tanigaki, who was
appointed in November's new cabinet lineup, proposed a
virtually zero-growth state budget for fiscal 2004 of
82.11 trillion yen in total, which is only up 0.4
percent from the initial budge for the current year.
This marked a shift from spending to stimulate
the economy, which was still a priority a year ago. The
new budget will see a proposed 3.5 percent cut in public
works spending. Education is down 3.5 percent and
official development aid is to be cut 4.8 percent. The
general account budget in the ministry's budgetary
proposal for the next fiscal year, starting April 1, is
up only 0.4 percent from the initial budget for fiscal
2003.
In the general expenditure category, key
policy areas have suffered spending cuts under the
ministry's proposal. Public works spending has been cut
3.5 percent (for the third year running), while
education expenditure saw a 5.9 percent reduction.
Social-welfare spending will rise 4.2 percent, under
pressure from higher medical expenses and such for older
Japanese. (While Japan's postwar population spike of
"baby boomers" are getting older, there has been no
dramatic drop in babies born.)
The official
development assistance budget was cut by 4.8 percent
(the fifth cut in a row, to a 15-year low). Defense
spending is to be slashed 1.0 percent, despite plans to
embark on an expensive missile defense system. This was
the second cut in a row and the largest one-year decline
on record from the Self-Defense Forces (some of which
are at this moment preparing to be deployed to
Iraq).
All in all, the Ministry of Finance
appears remarkably sanguine about the state of the
nation's finances compared to just one year ago, as the
budget negotiations were underway. At that time,
Koizumi's government appear much less certain of
economic prospects after more than a decade of
on-and-off recession and the problem of deflating
prices.
Koizumi's political grip on his own
party was shaky, as anti-Koizumi forces in the LDP were
still probing the prime minister's weaknesses. Public
opinion on such matters as Koizumi's support for US
President George W Bush's determination to depose Iraqi
president Saddam Hussein.
At that juncture,
Koizumi began to rely quite heavily on the Ministry of
Finance in fiscal and economic matters. This marked a
turnaround in morale for the ministry, which had been
stripped of much of its powers (and its name, the
Okurasho) in the late 1990s. Within short order, Koizumi
adopted measures to rehabilitate troubled companies,
leading to a ministry-inspired publicly financed
Industrial Revitalization Corp. The ministry's retiring
top bureaucrat was named as a deputy governor of the
Bank of Japan.
At a briefing on the budget and
tax proposal on Monday, officials spoke rather
confidently about the prospects for managing the
problems of a large national debt. This sort of optimism
was not to be seen a year ago. It is now clear that the
ministry had good reason at the time to be more
confident. Officials at the time were already
anticipating that the Japanese economy would show signs
of a strong than expected recovery toward the spring of
2003. The government had even added a bit of insurance
in the form of a supplementary budget of 1.5 trillion
yen in public works spending and a package of "safety
net" measures valued at another 1.5 trillion yen.
This was all orchestrated under the rule of the
wily octogenarian finance minister Masajuro Shiokawa,
who finally stepped down last month after Koizumi had
tightened his grip over the LDP.
What Santa
Claus appears to be bringing this year is the prospect
of an economy growing faster than the modest real gross
domestic growth of 2.0 percent in fiscal 2003 to the end
of March (0.1 percent nominal growth) and real 1.8
percent (nominal 0.5 percent) in fiscal 2004 as is
assumed in the budget projections. In the annual budget
compilation debate, the growth number is determined by
the budget projection - not the other way around.
If the growth is even slightly higher, the
impact on the fiscal problem will be significant. If
that is evident by the time of the Upper House election
in July, that is all the better for Koizumi and, of
course, Japan and the world.
So, as Santa says,
ho, ho, ho and happy New Year.
(Copyright 2003
Asia Times Online Ltd. All rights reserved. Please
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