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Sloppy management of the government’s enormous reserve funds allocated for measures against COVID-19 has come to light. If the government does not return to the original purpose of the funds, which should be restricted to spending for emergency situations, fiscal discipline may slacken at an accelerated pace.
An investigation by the Board of Audit of Japan has found that out of the ¥12.6 trillion for 58 projects that the government decided to use in reserve funds in fiscal 2020 and fiscal 2021 to respond to the COVID-19 pandemic, ¥3.7 trillion allocated for 18 projects was not used during the relevant fiscal year and was carried over to the following fiscal year instead.
Reserve funds are essentially a budgetary measure to deal with emergencies. Nevertheless, the fact that a large amount was carried over indicates the amount of reserve funds appropriated was excessive.
Even though the pandemic made it difficult to estimate budget needs, the board’s findings cannot help but raise questions about the process used to decide how the reserved funds are spent.
In March 2021, with only eight days remaining until the end of the fiscal year, the Cabinet approved the expenditure of ¥2 trillion in reserve funds. Some of the projects were funded on the assumption that the money would be enough to cover one year and that the project would actually be implemented in the following fiscal year.
In principle, reserve funds that are not used by the end of the fiscal year are supposed to be returned to state coffers as surplus funds. If the government rushed to decide on expenditures and secure the budget in order to avoid a situation in which surplus funds would be returned, that is highly problematic.
The government decides how to spend the reserve funds based solely on Cabinet decisions, without Diet voting. Therefore, strict enforcement and explanations to the public are essential.
However, the government argued that it was difficult to specify the use and amount of the reserve funds in isolation, since they were spent in conjunction with other funding that had been decided on for initial and potential supplementary budgets.
The board found that each ministry and agency had individually recorded the use of reserve funds in ledgers and other records, thus revealing the actual situation. The government’s previous explanations were grossly dishonest.
Hereafter, a mechanism for the government to appropriately disclose information about reserve funds must be established.
Prior to the COVID-19 pandemic, the reserve fund totaled about ¥500 billion per year and was often used to respond to natural disasters.
However, reserve funds were rapidly increased to the ¥5 trillion to ¥10 trillion level as part of measures against COVID-19 from fiscal 2020. In the initial budget for fiscal 2023, a total of ¥5.5 trillion was appropriated, with items including measures to deal with high prices and the situation in Ukraine.
There are concerns that appropriating a huge amount of reserve funds has become the norm and a “convenient purse for the administration in office.”
Abuse of reserve funds, which are not subject to checks by the Diet, may encourage careless fiscal spending, including in the compilation of the initial budget. In next fiscal year’s budget, the reserve fund should be drastically trimmed.
