What can be done to rebuild the nation’s finances, which are the worst among advanced nations? Financial reconstruction is an issue that will heavily influence Japan’s future.
However, there has not been very much debate on the issue in the campaigning for the Dec. 16 general election. Parties must show their resolve in dealing with this problem.
Japan’s finances are facing a critical situation. Tax revenues have been continuing to decrease due to the prolonged economic downturn following the bursting of the bubble economy in the 1990s. At the same time, welfare costs have ballooned due to the rapid aging of the population, and successive economic stimulus packages have swelled expenditures.
Annual government bond issuance to fill the gap between tax revenues and expenditures has been in the 50 trillion yen ($606.17 billion) range in recent years. About half of the 90 trillion yen general account budget for fiscal 2012 was procured from the issuance of bonds. The nation’s dependence on borrowing is serious.
It is appalling that the issuance of new bonds has exceeded tax revenues for three years in a row. If today’s excessively low interest rates begin climbing upward, the burden of interest payments will increase significantly, making it even more difficult for the government to rebuild its finances.
In their campaign platforms, the Democratic Party of Japan and the Liberal Democratic Party both have stated a goal of achieving a surplus in the primary balance by fiscal 2020 so that the government could secure policy-related expenses mainly from tax revenues without issuing new bonds. However, both parties have failed to show concrete methods on how to achieve the goal.
The first step toward sound public finances is to steadily implement the two-stage consumption tax hike scheduled to take place in April 2014 and October 2015 and to move forward the integrated reform of the social security and tax systems. Even after the consumption tax rate is raised to 10 percent, the government is expected to face an uphill battle to rebuild the nation’s finances.
However, such parties as Nippon Mirai no To (Tomorrow Party of Japan), the Japanese Communist Party and Your Party have taken positions against the consumption tax hike, claiming that the government should trim wasteful budget spending first. We wonder how they would cover the surge of welfare costs without a tax hike.
There is no room for the government to fall deeper into debt by further relying on government bonds, and ask future generations to clean up the mess. It is difficult to call them responsible parties as long as they tout overly optimistic future prospects that have no foundation and evade taking necessary measures that would be painful.
There are also problems in the aim of Nippon Ishin no Kai (Japan Restoration Party) to make the consumption tax a local tax after raising its rate to 11 percent.
Will it ever be possible for local governments to collect consumption tax by themselves without the help of the central government, and distribute the money properly? It is also doubtful the central government would be able to find other revenue sources to cover social security costs.
Looking at parties’ campaign platforms, we have to say their efforts on spending cuts are far from sufficient. The platforms include plans to support farming and implement public works projects, measures that could result in recklessly handing out taxpayers’ money. The LDP has pledged to cut personnel expenses of government officials and to review livelihood protection allowances, but their effect on spending cuts will be small.
It will be important for the government to preferentially allocate limited budget resources to economic fields expected to grow in the near future, as this may result in increased tax revenues. We urge parties to more fully debate budgetary reforms that challenge the vested interests of the people concerned.
