Economic Measures: Refrain from Fiscal Spending on Premise of Budget Scale

With economic activities steadily progressing toward normalcy now, is it necessary to continue massive fiscal spending, making use of supplementary budgets that have been implemented as an emergency step amid the coronavirus pandemic?

Supplementary budgets are supposed to be used to address unforeseen problems that arise during a fiscal year. If the government lines up nonurgent projects, it inevitably could be viewed as pork-barrel spending ahead of an election.

Prime Minister Fumio Kishida has instructed relevant Cabinet ministers to formulate new economic measures, which are to be finalized by the end of October. He intends to compile a supplementary budget plan for fiscal 2023 to fund the measures.

Kishida said the new economic package will be based on five pillars: tackling soaring prices; supporting sustainable wage hikes and regional economic growth; promoting domestic investment; reforming society to overcome the declining population; and ensuring the safety and security of the public through such measures as strengthening the nation’s resilience to major disasters.

All of these themes are important, but they are merely indications of the challenges that Japan faces. They comprise a mixture of urgent issues and matters that need to be addressed in the medium to long term.

Measures to tackle high prices to help low-income earners and measures to support wage increases for small and midsize enterprises following minimum wage hikes from October can be said to be pressing issues.

However, measures to overcome the declining population and measures to strengthen the nation’s resilience to major disasters, among others, must be tackled through assiduous efforts. It would make sense to address these issues in the initial budget.

If a supplementary budget is to be compiled, it is essential to prioritize policies and focus on the important ones.

Since the outbreak of the coronavirus pandemic, the government has compiled supplementary budgets of ¥73 trillion in fiscal 2020, ¥36 trillion in fiscal 2021 and ¥31.6 trillion in fiscal 2022. The figure for fiscal 2019, before the pandemic, was ¥3.2 trillion.

In its annual “Basic Policy on Economic and Fiscal Management and Reform” finalized in June, the government stated that it would return the expenditure structure to one that fits regular times in light of Japan’s critical fiscal situation. That policy must be implemented.

With speculation rife that the House of Representatives will be dissolved for a snap election this autumn, there are growing calls for fiscal spending, with a senior member of the Liberal Democratic Party stating that a budget on a scale of ¥15 trillion to ¥20 trillion is necessary for the economic measures. Formulating measures based on the premise of budget scale should be strictly avoided.

According to the Cabinet Office, the supply and demand gap, which indicates the difference between demand and potential supply capacity in the Japanese economy, turned positive in the April-June period, marking the first time in three years and nine months that the demand shortage had been eliminated.

Up to now, economic measures have been aimed at filling the demand shortage. The situation has now changed. It has also been pointed out that stimulating demand excessively could accelerate inflation.

The execution of budgets for public works and other projects in various parts of the country is reportedly facing delays due to labor shortages. The government needs to pay heed to such issues as well.

(From The Yomiuri Shimbun, Sept. 27, 2023)