Tuesday, December 29, 1998
At ¥81,860.1 billion the Ministry of Finance's draft of the FY 1999 General Account Budget looks like a block buster. But skeptics worry that it really is a budget buster. The 5.4 percent rise in total outlays (compared to the initial FY 1998 budget) is impressive, as is the 8.4 percent hike in Social Welfare spending and the 5 percent hike in public works projects. Prime Minister Obuchi's cabinet has been under pressure to light a fire under the economy and this free-spending plan is a clear response.
The government also is calling attention to a planned 7 percent increase in the government's second, capital budget, the Fiscal Investment and Loan Program, the first increase in three years. With disbursements to public corporations totaling nearly ¥40 trillion, the initial FY 1999 FILP includes a 10 percent hike for the Small business Finance Corp. and 2 percent more for the Housing Loan Corp. But the big winners are a new entity to be created by merging the Japan Development Bank and the Hokkaido-Tohoku Development Finance Public Corp., and organizations working to counter the Asian Economic Crisis. The new merged development entity will have a budget of ¥2.9 trillion, 95.3 percent more than the combined total of the two separate entities' budgets. Together, funds for the Export-Import Bank of Japan and the Overseas Economic Cooperation Fund will soar 76.6 percent over the agencies' individual totals for FY 1998.
What worries bean counters is that the surge in spending will be funded mainly by borrowing. Total tax revenues in the General Account are expected to fall 19.5 percent in FY 1999, while bond issues will jump 99.6 percent to ¥31,050 billion. Tokyo already is seeing signs that the private sector is hesitant about absorbing such huge bond flotations, perhaps meaning that Japanese interest rates will have to rise to clear the market. These fiscal conundrums will be explored further in JEI's upcoming reports.
"JEI's Spin on the News" are the opinions of one of more members of JEI's staff and do not necessarily represent the views of the organization.