No details in proposed budget cuts
Once-influential CEFP drops numerical targets – its hallmark during Koizumi era
The key policy-setting panel of Prime Minister Shinzo Abe on Nov. 30 drafted the basic framework for the fiscal 2007 budget compilation, which features a large cut in government bond offerings, the culprit behind the nation’s huge fiscal deficit.
But it did not include any of the brutal cost-cutting proposals that had become the panel’s hallmark under former Prime Minister Junichiro Koizumi.
Government bond issuances total about 29.97 trillion yen ($258 billion) in the initial budget for the current fiscal year. The Council on Economic and Fiscal Policy’s proposal stated that issuances “will be reduced sharply” from this figure.
Abe is seeking to achieve a primary balance by increasing tax revenue through economic growth. The council’s proposal also sends a message that expenditure also will be reduced to rebuild the nation’s crippled finances.
The panel’s proposal was approved by the cabinet on Dec. 1. It will serve as guidelines for fiscal 2007 budget negotiations, which are expected to intensify towards the year-end. The proposal also listed a 3% cut in public works projects, among others.
The CEFP had sought to slash government bond issuances “as much as possible” as of Nov. 24, but at the meeting on Nov. 30, the language was changed to “reduce sharply” and did not include a numerical goal.
On tax revenue, which is expected to grow, the proposal called for spending restraint.
A year ago, on former Prime Minister Junichiro Koizumi’s watch, the panel included a numerical target for government bond issuances, setting a ceiling at 30 trillion yen.
The draft did not refer to plans to make road-related tax revenues available to the general account. It also did not refer the extent to which subsidies granted to local governments will be cut in fiscal 2007 is unclear so far. Chances are the Abe government will rely on tax revenue for rebuilding the nation’s finances.
Abe spoke up at the CEFP meeting, expressing his resolve to transfer gasoline tax revenue, which is earmarked exclusively for road-building projects, to the general account.
The CEFP’s basic framework for the fiscal 2007 budget failed to propose specific plans for transferring special road-building revenues to the general account.
“Although necessary roads must be built, I will change the system that automatically allows road construction,” he said at the meeting. Abe went on to say that the government will consider revising the law that now serves as the legal grounds for allocating gasoline and tonnage taxes exclusively for road building but he did not give a timetable for the envisioned reform.
Making road-related taxes available for the general account is one of the main focuses in the compilation of next fiscal year’s budget. However with the Liberal Democratic Party lawmakers expected to put up a fight, some in the government are already suggesting compromise plans, such as shifting a portion of gasoline taxes to the general account next fiscal year.
CEFP sway on decline?
The CEFP, which has exercised strong leadership in promoting Koizumi’s reform initiatives, was expected to do the same under Abe, who took office in September. To Abe’s disappointment, however, nongovernmental members have so far failed to play the role of unapologetic reform advocates and instead issued neutral statements claiming that the gasoline tax reform is a crucial test for the Abe cabinet.
The council’s proposal also failed to touch on the goal of holding down the subsidies granted to local governments, the third-largest state expenditure; and, in addition, it avoided specific references to countermeasures to the declining birthrate, an pressing issue for the aging Japanese population.
The CEFP may only be credited with calling for a sharp reduction in the issuance of government bonds and proposing a framework to aid those trying for a second chance at success, such as failed business owners.
The council, which was setting the basic policy for Koizumi’s first budget five years ago, surprised the ruling parties by recommending a 10% cut in public works projects, a category that was previously considered untouchable.
Yet this time, the proposal as a whole lacks punch, although Economic and Fiscal Policy Minister Hiroko Ota praised it at a news conference on Nov. 30 for “reflecting previous debates within a very limited time.”
The CEFP’s ability is now being called into question. Many members at an LDP policy meeting on the same day criticized the panel for representing the interests of businesses. “We’ll lose in next year’s upper house elections if we simply accept their argument,” one member said.
Vigor gap
Under the Koizumi administration, Heizo Takenaka, former minister for economic and fiscal policy who effectively presided over the blue-ribbon panel, made the council a main venue for policy making, snatching the initiative from the ruling coalition parties and bureaucrats.
While emphasizing that he will pursue spending cuts as the Koizumi administration did, Abe has publicly said since the campaign for the LDP leadership election that he will pay heed to the bleak financial conditions of municipalities.
It remains to be seen whether he can continue to cling to his political principles and press ahead with reform with the leadership of the party.