The government's budget plan for fiscal 2020 has been finalized. General-account spending totals 102.7 trillion yen, up 1.2 trillion yen from the then record high in fiscal 2019. The total amount has topped 100 trillion yen for the second consecutive year on an initial budget basis.
Although 1.8 trillion yen was earmarked as a temporary measure to boost the economy this time, the swelling of the budget cannot be continued heedlessly. This budget plan apparently has left open the question of how to tighten fiscal discipline.
Social security spending, which accounts for one-third of the total expenditures, reaches a record 35.9 trillion yen, an increase of 1.7 trillion yen from the previous fiscal year. Besides natural growth stemming from the nation's aging population are ballooning costs to make early childhood education, childcare and higher education free.
As members of the postwar baby-boom generation will begin to be in the age bracket of 75 and older in 2022, an increase in social security costs will accelerate. Reforms need to be carried out quickly to realize a sustainable social security system.
To finance public works projects, 6.9 trillion yen has been secured, which is about the same as the previous year. The government intends to focus its efforts on disaster recovery and disaster prevention measures such as working on aging bridges, roads and other infrastructure, reinforcing dams and embankments and excavating riverbeds.
Priority must be given to repairing and improving infrastructure, which is directly linked to human lives. However, the government must avoid nonessential projects in the name of measures for building national resilience. It is hoped that the projects will be scrutinized in Diet budget deliberations.
Tax revenue for fiscal 2020 is expected to reach 63.5 trillion yen, up 1 trillion yen from the previous year's initial budget. The amount will hit an all-time high boosted by, among other things, the consumption tax that was increased in October.
What is concerning is that, regarding the economic growth rate, which helps predict tax revenue, the government has presented an optimistic forecast of 1.4% in real terms that is significantly higher than the private sector's projections. Even so, the new issuance of government bonds is expected to reach 32.6 trillion yen.
Tax revenue for fiscal 2019 was revised down by about 2.3 trillion yen from the initial estimate, forcing the government to issue additional deficit-financing bonds. Tax revenue should be estimated based on solid economic projections.
The long-term outstanding debt of the central and local governments exceeded 1.1 quadrillion yen, about double the size of the nation's gross domestic product -- the worst level among major countries. The government aims to achieve a primary balance surplus in fiscal 2025. But if reforms do not progress, it is estimated that a deficit of 2.3 trillion yen will remain.
Regarding an additional hike of the consumption tax rate, Prime Minister Shinzo Abe said in July, "That won't be necessary in the next 10 years or so." However, given the stringent fiscal situation, the government cannot afford to stop further increases in the consumption tax rate.
Fortunately, domestic employment has stabilized. The government has maintained its economic assessment that the Japanese economy "is recovering at a moderate pace."
Unless full-fledged revenue and expenditure reform is launched now, fiscal reconstruction will only be further away.
-- This article appeared in the print version of The Yomiuri Shimbun on Dec. 21, 2019.
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