Following the burst of the bubble
economy in the early 1990s, the government has repeatedly employed
large-scale fiscal measures to pump up the ailing economy. The
subsequent severe economic conditions, however, have caused
a significant decline in tax revenue, and the government was
forced to continue issuing deficit-covering bonds, placing heavy
pressure on the fiscal situation. The Koizumi Cabinet, with
intentions of keeping government debts from further snowballing,
proposed to keep issuance of government bonds under ¥30
trillion for the budget of fiscal year 2002 (compiled April
2001) which totaled ¥81.23 trillion. But despite the continuing
deterioration of national revenue, Koizumi quickly found himself
facing mounting calls from the public that the government should
adopt more flexible macroeconomic and monetary policies .
In December 2002, the government adopted a ¥4.2 trillion
supplementary budget for fiscal year 2002 to shore up the battered
economy and decided on issuing bonds amounting to ¥4.97
trillion in addition to those initially proposed. The amount
of new bonds issued in the same fiscal year totaled ¥34.97
trillion, far exceeding the proposed limit of ¥30 trillion.
Consequently, outstanding government debts as of the end of
March 2003 reached a record high of ¥668 trillion, up 10.1%
from a year earlier.
The size of the budget for fiscal year 2004 proposed by the
government expanded 0.4% to ¥82.11 trillion from the initial
budget for the previous year, marking the second consecutive
year of increase. The draft budget contains a record ¥30.09
trillion in government bond issues to cover the budget deficit.
The ratio of government's dependence on bonds to overall general-account
revenue will rise to a record 44.561% on an initial budget basis,
slightly up from the high of 44.559% set in fiscal year 2003.(*1)
Koizumi has pledged to achieve by the early 2010s a surplus
in the primary budget balance (excluding bond issuance and redemption).
Many analysts say, however, that primary balance is unlikely
to be achieved merely by cuts in spending. This may prompt the
government to consider tax reform, which would include tax increase.
Fiscal Investment and Loans
A distinctive feature of Japan's public finance system is the
existence of large government investment and loan program named
Zaisei Toyushi (fiscal investment and loans, shortened as Zaito),
often dubbed "the second budget."(*2) Funds for this
program originate with government-run savings systems, including
postal savings, pension, and life insurance, and are pooled
into a special account at the Ministry of Finance. These investments
and loans are intended to enhance the social environment through
housing, highway construction and other infrastructure, or to
add to social capital. Funds are extended to government financial
institutions, public corporations and local governments. But
the efficiency and integrity of these special corporations has
come under attack. In May 2000, the Diet passed a package of
bills designed to revamp the government's fiscal investment
and loan program into a leaner market-oriented system. In the
fiscal 2003 budget, the government earmarked ¥23.41 trillion
for the fiscal investment and loan program, 12.6% less than
in 2002, marking the fourth consecutive year of reduction. Because
of the growing tendency for public- sector entities financed
by the Zaito Program to leave budgeted funds unused, it is likely
that the program will face further contraction in fiscal year
2004.
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