Draft policy pushes for belt-tightening

Yomiuri Shimbun, 15 June 2002

Strong resistance is expected to further progress of a draft policy on economic and fiscal management and structural reforms adopted Thursday by the government's Council on Economic and Fiscal Policy, which advocates reduction of government spending without sacred cows.

The draft policy stresses continuation of a belt-tightening policy in fiscal 2003. In compiling the fiscal 2003 budget, both total budget expenditures and general account expenditures should be held to levels less than those in the fiscal 2002 budget, it said.

However, the draft policy failed to say how much should be cut on spending on public works and other government projects—a key to reducing national expenditures—saying such decisions should be left to the Cabinet when it sets a budget request ceiling.

The draft policy reorganized the seven priority areas in the fiscal 2002 budget into four areas—science and technology, and education and information technology; urban and rural communities; measures to deal with the aging population and declining birthrate; and the environment—for the fiscal 2003 budget in an effort to control spending.

It also said Cabinet ministers should take responsibility for reforming the policies and expenditures of their ministries, and should base such decisions on principles set by the prime minister and advice from the council. This statement is seen as an attempt on the part of the fiscal policy council to give more budget drafting power to the Cabinet as opposed to the Finance Ministry.

It also stressed that the budget drafting process needs to be seen to be transparent, criticizing the former practice of drafting the budget behind closed doors.

The council is also planning to propose a comprehensive system to evaluate a policy of deciding priority areas in the budget. Masaaki Honma, a member of the council from the private sector, said that council members would like to comment on how the basic principle is reflected in actual policies and structures before and after their implementation.

However, Finance Minister Masajuro Shiokawa warned that the council should confine itself to outlining basic principles and leave the task of deciding budget appropriations to his ministry, which would consult with the relevant government organizations.

In addition, some Finance Ministry officials said it was questionable whether the council will win over the ruling parties and balance conflicting interests among ministries and agencies.

Observers said it remains unclear how much of the council's opinion actually will be implemented.

The draft policy also stipulated that appropriations should be reduced in areas in which increased expenditures cannot be avoided without drastically reforming structures such as social security funds, tax grants from the central government to local governments, and salaries for government employees. If not slashed, social security expenditures will increase in the fiscal 2003 budget by 900 billion yen from this fiscal year as more money is spent on pension benefits as the population ages.

Tax grants from the central government will also increase by 2.2 trillion yen to supplement local governments' revenue shortfalls.

The draft policy said the increase of expenditures should be curbed by the drastic reform of social security systems and reimplementation of a price-sliding system for pension payment, which has been frozen for four years.

The draft policy also suggests slashing salaries for government employees. It also proposed slashing government subsidies to local governments by trillions of yen in the next four years.