10 Years On, Osaka Fiscal Reform Started by Hashimoto Unfinished

January 19, 2018

Osaka- Since Toru Hashimoto was elected Osaka governor in January 2008 and subsequently launched his reform drive, the prefecture in western Japan has turned its debt-heavy public finances around to achieve budget surpluses.

Some experts, however, downplay the recovery as superficial and suggest that there is a long way to go before real fiscal health is restored for Osaka.

A firebrand lawyer-turned-governor, Hashimoto tackled fiscal reconstruction as the first order of business. Burdened by debt issued to finance large-scale public works projects, Osaka Prefecture suffered a budget deficit for 10 consecutive years from fiscal 1998.

Under Hashimoto's predecessor, Fusae Ota, who served as governor for two four-year terms from 2000, the prefectural government had to dip into its sinking fund, a pool of money set aside for repaying debt, to make up for fund shortfalls to compile annual budgets. Ichiro Matsui, the current governor, once called the move a "fiscal no-no."

Taking office in such financial dire straits, Hashimoto, known for his sharp tongue, told senior officials of the prefectural government in an address on the first day of work, "You are employees of a bankrupt company."

Hashimoto declared a state of fiscal emergency and started reform programs including cuts in subsidies and personnel costs. The Osaka government produced a budget surplus for nine straight years through fiscal 2016, with cumulative reform benefits estimated to total 585.3 billion yen as of the March end of fiscal 2017.

The number of prefectural government workers was reduced from 10,298 in fiscal 2008 to 7,855 in fiscal 2017, while that of prefectural assembly seats fell from 109 to 88.

Hashimoto, who became mayor of the capital city of Osaka in 2011, resigned from politics in 2015 after his Osaka metropolis plan, an ambitious realignment proposal aimed at raising efficiency in local administrative operations, was rejected by citizens in a closely watched referendum.

His reformist policy line has been taken over by Nippon Ishin no Kai, the political party headed by Osaka Governor Matsui. The party, which originated in a regional political party founded by Hashimoto, is pushing ahead with "biting" administrative reform.

Despite the budget surpluses, the effective proportion of the prefecture's income used for debt repayment has remained high, standing at 18.4 pct in fiscal 2016. Due to the high share, Osaka needs to gain the internal affairs minister's approval for issuing new debt to raise funds, along with Hokkaido and Iwate Prefecture.

"The figure has worsened due to the heavy burden of repaying past prefectural debt and shortfalls of reserves in the debt consolidation fund," a senior official of the prefectural government said.

"The surplus is numerical magic," said Shin Takayama, professor of Osaka Kyoiku University and specialist in finance. "The budget surplus came at the expense of a debt consolidation fund that has not been accumulated property. We can't be proud of it as fiscal reconstruction."

Steady progress in fiscal reconstruction requires growth in tax revenue. Due to a continuing outflow of businesses, however, Osaka Prefecture's revenue from two corporate taxes--the corporate inhabitant tax and corporate enterprise tax--has plunged by half, from 835.2 billion yen in fiscal 1989 to 408 billion yen in fiscal 2016.

"An economic structure that supports tax revenue growth is not in place," former Governor Ota said.

Ota is critical of the economic policy of the 10-year-old prefectural government rule under Hashimoto and like-minded politicians of what is now Nippon Ishin. "It was a lost decade," she said. "Debt has increased."

To spark an increase in tax revenue, Matsui, the incumbent governor, pins hope on gaining approval for a proposal to set up an integrated resort featuring a casino in the city of Osaka and winning a bid to host the 2025 World Expo there. But some warn that the economic benefits of the casino resort will not be large.

It is uncertain whether reform in Osaka Prefecture will make headway in line with Matsui's blueprint, experts said. Jiji Press