TOKYO Kyodo Japan's record budget for fiscal 2022 laid out the need for real discussions about how to restore its debt-ridden finances, but the chance of seeing them anytime soon seems very slim, at least until the House of Councillors election scheduled for July next year.
The budget, approved Friday by the Cabinet of Prime Minister Fumio Kishida, is 107.60 trillion yen $940 billion, a record high for the first time in a decade, while there are deep concerns that the government may spend more in the fiscal year starting in April through extra budgets, as in recent years.
Politicians tend to have reservations about bringing fiscal reconstruction under the spotlight, especially in the run-up to an election, because it reminds voters about the possibility of higher taxes.
The prime minister Kishida has avoided such debate and is expected to do the same for the time being, said Yuichi Kodama, chief economist at Meiji Yasuda Research Institute.
The approval of the initial budget plan took place less than three months after Kishida took office and nearly two months after the Liberal Democratic Party and its junior coalition partner Komeito retained a majority in the House of Representatives, the more powerful lower chamber of parliament, in the general election.
Kishida was originally said to be a person who emphasizes fiscal discipline. After the next upper house election, there could be no national elections for a long time, so I hope he starts policy debates about how to secure financial resources if the ruling parties win the election, at the latest, Kodama said.
In Japan, upper house elections are held every three years to appoint half of the chamber to six-year terms, while lower house elections take place every four years unless the prime minister is dissolved.
As the LDP pledged to support the COVID 19 hit economy during the campaign for the Oct. 31 general election, the government drew up a large-scale stimulus package last month.
It then compiled a 35.99 trillion yen extra budget for fiscal 2021, including 22.06 trillion yen in new debt issuance.
In Japan, 18.61 trillion yen under the extra budget was allocated for measures to curb the spread of the coronaviruses and assist medical institutions, although the number of new COVID 19 cases has been low in recent weeks.
The extra budget included some outlays that seem to be non-urgent, and the size of this fiscal year's whole budget eventually totaled 142.60 trillion yen, of which only 63.88 trillion yen is estimated to be financed by tax revenue.
Takuya Hoshino, senior economist at the Dai-ichi Life Research Institute said that while trying to keep the size of an initial budget as small as possible, it has become an every-year practice for each administration to form extra budgets to roll out its preferred policy measures.
This is a major reason why government spending is easy to swell, according to Hoshino, who said that the Finance Ministry's wish to keep the size of initial annual budgets smaller as opposed to the demands of the ruling coalition to come up with unique economic and welfare policies by extra budgets is a major reason why it is so easy to swell.
Japan has a limit on the purpose of formulating supplementary budgets to cover particularly vital expenses that are caused by events that occurred after compiling the initial budget.
Hoshino thinks that outlays for decarbonization and digitalization should be included in initial budgets because the government's way of planning how to use money is not wise enough.
Such expenditures should be planned on a multiyear basis, he said, as it would help to induce more investment from the private sector and companies will find it easier to make business plans.
If the government includes more expenses in initial budgets, it will become more difficult to meet the goal of putting its primary balance tax revenue minus expenses other than debt-servicing costs into the black by fiscal 2025.
There is a primary deficit of 13.05 trillion yen projected under the fiscal 2022 budget. It will improve from the 20.36 trillion yen deficit in fiscal 2021, but it's still worse than the 9.63 trillion yen in red ink for fiscal 2020.
The government has said it will look into the fallout from the coronaviruses on Japan's economy and finances, and that a primary surplus in fiscal 2025 may not be achieved in line with its goal.
Finance Minister Shunichi Suzuki said at a press conference after Friday's Cabinet approval that the goal does not need to be reviewed at this point. Hoshino believes that the government sticking to the primary balance goal will not lead to wise fiscal spending because investment for economic growth and efforts to aim for a primary surplus will be tepid.
Kodama is a contrasting view, saying that no one may believe that a primary surplus is achievable, but the biggest meaning of maintaining this goal is to show that the government has a will to rebuild the country's finances. If it was retracted, it could look as if Japan had brought down the banner of fiscal consolidation, he said.