Gov’t under pressure to compile large-scale extra budget

March 30, 2018

Tokyo- Although its just-enacted budget for fiscal 2018 features record-high spending, the Japanese government is already under pressure to compile a large-scale supplementary budget for implementing economic pump-priming measures in view of a planned consumption tax hike.

The momentum toward restoring fiscal health has not been fostered, with the Ministry of Finance, responsible for assessing and curbing expenditure plans, having difficulty exerting a strong presence amid a document manipulation scandal involving itself and school operator Moritomo Gakuen.

The government earlier planned to achieve a surplus in Japan's primary balance, or the difference between chiefly tax revenues and expenditures excluding new public debt issuance and debt-serving costs, in fiscal 2020.

But it gave up on meeting the target because it decided to expand the usage of expected revenue from the planned October 2019 hike in the consumption tax rate from 8 pct to 10 pct to include the financing for making preschool education free, a move against the efforts to reduce government debts.

Although the government plans to work out a new fiscal reconstruction scheme in June at the earliest, observers say achieving a primary surplus is nowhere in sight, with some within the ruling Liberal Democratic Party even seeking the abandoning of the surplus target.

In the meantime, Prime Minister Shinzo Abe instructed members of the Council on Economic and Fiscal Policy in February to consider crafting an economic stimulus package with the aim of cushioning the negative impact of the consumption tax hike on the economy.

Also seeing the need to promote efforts toward overcoming deflation and cope with an anticipated setback in demand following the 2020 Tokyo Olympics, a senior ruling party official said, "The government should implement stimulus measures over multiple years from this autumn."

There are calls from some LDP lawmakers for setting the size of the upcoming stimulus package at more than 10 trillion yen.

The government has set a target of limiting policy spending growth to around 1.6 trillion yen over the three years through March 2019.

As this policy spending does not include pump-priming measures implemented under a supplementary budget, however, such a budget is widely regarded as a loophole for government expenditure growth.

The Osaka District Public Prosecutors Office is currently investigating the MOF document-tampering case. Due to the possibility of it losing face further depending on the course of the investigation, the ministry finds it difficult to make aggressive moves in containing expenditure growth.

The lifting of the consumption tax rate to 10 pct has already been postponed twice. "It would be a disaster if economic measures were implemented in advance and the tax hike were put off once again," a senior MOF official said with a touch of self-derision. Jiji Press