Govt, Ruling Parties Agree On Broader Use Of Road Tax Revenues

Friday, December 8, 2006

Govt, Ruling Parties Agree On Broader Use Of Road Tax Revenues

TOKYO (Nikkei)–The government and the ruling coalition reached a final agreement Friday on a reform plan to change the use of road-related tax revenues, with the guidelines formally endorsed at a cabinet meeting the same day.

The government, the Liberal Democratic Party and New Komeito agreed at a joint meeting in the morning to revise relevant laws during the ordinary Diet session in 2008 to allow a certain amount of road-specific tax revenues to be used for purposes other than road construction.

However, because the government’s plan does not clearly state whether revenue from the gasoline tax will be subject to the change, most of the funds will likely go toward road construction.

Both sides agreed that road-related spending should be kept to a minimum, with only those construction projects deemed truly necessary allowed to move forward. The accord emphasizes that any surplus road-tax revenues can be used for other purposes. It also states that the government will draw up a medium-term road construction plan, which the ruling parties had requested.

The government and the ruling bloc will now discuss the details of how to allocate road-related tax money to the general account. The focus will largely be on gas tax revenues, which account for about 80% of all road-related tax income.

They will maintain the current tax rates, which have been temporarily raised to levels roughly double the original figures. They also decided to return some of the benefits from the reform efforts to consumers in the form of lower highway toll fees, among other means.

(The Nihon Keizai Shimbun Friday evening edition)

Friday, December 8, 2006

CHRONICLES: 4 Decades Brings Little Change In Japan’s Road Construction

TOKYO (Nikkei)–Highways are a wonder drug when it comes to regional development. That is the idea trumpeted by a Japan Highway Public Corp. board member in the December 1967 issue of the magazine Taiyo, which ran a feature article entitled “The Highway Era.” “Pleasant modern roadways are being built one after another, linking major cities into an organic network,” the board member goes on to say.

The article seems to reflect the enthusiasm of that era, when Japan was bubbling with excitement over road construction and the partial opening of the Tomei and Chuo expressways was approaching. Funding for these highways came from the Road Construction Special Fund. A system was already in place so that gas taxes went automatically into road construction and in the early 1970s a vehicle weight tax was also born. The man who thought all this up was Kakuei Tanaka, who was soon to assume the mantle of prime minister.

Given this kind of history and because it is a program that has underpinned the nation’s civil engineering industry, it must be hard to let go of this convenient system so easily. This is evidenced by the fact that recent reform plans have no substance. It is claimed that “tax revenue in excess of road expenditures will be put into the general fund,” but in the language of the world, that is only “the part that is unused can be freely spent.” And whether or not there is any overflow depends entirely on “road expenditures.”

That same old magazine ran a poem about highways by Shiro Murano. “The philosophy of a new dream/ Dreadfully complete/ While carving an enormous question mark in the sky/ Leaves people trembling, dizzy, speechless.” If we borrow that expression, the “enormous question mark” about roads is only getting larger and larger. Despite the passage of 39 years, roads driven on by only a very few automobiles are still “being built one after another.”

(The Nihon Keizai Shimbun Friday morning edition)

Friday, December 8, 2006

Govt-Coalition Compromise May End Up Protecting Road-Building Funds

TOKYO (Nikkei)–Reform efforts to expand the use of more than 5.8 trillion yen in tax revenue earmarked for road construction may fall flat, because a compromise agreement between the government and ruling coalition threaten to blunt their impact.

The former Koizumi government initiated these reforms, which aim to overhaul the existing tax structure that automatically allocates revenue from automobile and gasoline taxes to highway construction. This system has long been used as a tool by politicians who thrive on pork barrel spending and has resulted in wasteful public works projects. The government now wants to make the money available for social security programs, government bond redemptions and other administrative expenses.

But on Thursday, the government and ruling coalition agreed to shift to the general account only the revenue that remains after necessary road construction funding is secured. This suggests that funding set aside specifically for highway-related projects may remain intact.

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The government and ruling parties also agreed to submit pertinent legislation expanding the use of such revenue to the ordinary Diet session in 2008. Prime Minister Shinzo Abe is expected to seek drastic changes including diverting gasoline tax revenue to the general account, but the ruling coalition is expected to fight such efforts.

Even if the government manages to include a legislative provision stating that gasoline tax revenue does not have to be used for highway projects, the agreement to allocate leftover funds to the general account will mean that road construction will still consume the bulk of the funds.

The government’s 2006 basic guidelines for economic and fiscal management call for annual 1-3% cuts in public works projects over the next five years. Even if such reductions generate leftover funds that can be used for general spending starting in fiscal 2008, the pace of growth in the actual amount is likely to be limited to a maximum 3% or so a year.

Less road construction would increase coffers for the general account, but the government and ruling coalition agreement does not include specific measures to prevent wasteful spending. The government says that it will move ahead with road construction that is truly necessary, but this is not clearly defined.

Currently, road construction expenses are largely determined by the Ministry of Land, Infrastructure and Transport and the Ministry of Finance. The former’s road construction plans tend to reflect the whims of local governments, including costly projects. In its current five-year plan, the Ministry of Land, Infrastructure and Transport is asking for up to 38 trillion yen for highway construction.

If the future allocation of funds is left up to the ministry, proposed cuts to public works projects may become meaningless.

(The Nihon Keizai Shimbun Friday morning edition)

Friday, December 8, 2006

ANALYSIS: Abe Must Demonstrate He Can Quiet Reform Opponents

TOKYO (Nikkei)–The agreement reached Thursday between the government and the ruling coalition over road tax reform turned out to be a collection of toothless measures and a huge disappointment to those who had expected decisive leadership by Prime Minister Shinzo Abe.

With tax revenue on the rise thanks to a recovering economy, lawmakers representing different interests and local governments are calling for spending increases in a wide range of areas, including road construction. But so far, Abe has been visibly absent from the debate. We have been waiting for him to lead the reform efforts.

During his inaugural speech at the end of September, Abe said he would work on compiling proposals to divert road-specific tax revenue to the general account. But the agreement reached Thursday between the government and ruling parties — including the submission of legislation in 2008 that would expand the use of this revenue — is a far cry from the bold reforms that he vowed to pursue during his Liberal Democratic Party presidential campaign.

The Council on Economic and Fiscal Policy (CEFP) has also stayed on the sidelines, as shown by its basic guidelines for the fiscal 2007 budget compilation that basically follow the plans outlined by Abe during his inaugural speech.

Some officials say Abe may have lost his window of opportunity to exert more influence over the LDP. “He should have taken charge to restrain the ruling parties when he still had momentum working in his favor following the new government’s launch,” said a senior official at an economy-related ministry.

Chief Cabinet Secretary Yasuhisa Shiozaki has played a crucial role representing the government during negotiations with the ruling parties, but Abe has been conspicuously absent.

While former Prime Minister Junichiro Koizumi’s method of battling head to head with those who opposed him drew criticism, his top-down management of the CEFP helped produce concrete results. Specifically, Koizumi issued detailed instructions, such as capping new Japanese government bond issuances at 30 trillion yen and halving bad-debt ratios.

Abe has also issued instructions to the CEFP, but often uses vague terms as when he called for, “a sharp reduction in bond issuances.”

Government slogans such as “no fiscal reconstruction without growth” and “no future for Japan without growth” are catchy. But Abe needs to keep in mind that there will be no growth without reforms.

–Translated from an article by Nikkei senior staff writer Akio Fujii

(The Nihon Keizai Shimbun Friday morning edition)