FY24 Draft Budget: Scant Evidence of Serious Efforts to Reduce Government Spending

Although the government’s initial budget plan has shrunk in size from the previous fiscal year, it remains swollen compared to pre-pandemic levels. The government must make serious efforts to improve the efficiency of its spending to rebuild the nation’s finances.

The government has decided on a budget plan for fiscal 2024. The amount of general account spending totals ¥112 trillion, down by ¥2.3 trillion compared to the initial budget for fiscal 2023, which marked a record high. This is the first time in 12 years that a draft initial budget has decreased from the previous year.

In June, the government stated in its Basic Policy on Economic and Fiscal Management and Reform that it “will work to return the expenditure structure to normal” by reviewing spending that had ballooned due to the COVID-19 pandemic.

However, it is hard to say that the current budget plan has reached this goal. The amount remains more than ¥9 trillion higher than the draft initial budget for fiscal 2020 that was compiled before the pandemic.

The year-on-year decrease in the total amount is mainly attributed to a decline in reserve funds, for which ¥5 trillion was allocated each year for the past several years to finance measures against the pandemic and rising prices, but that amount has now been cut to ¥1 trillion. Now that the pandemic has subsided, it is natural that such reserve funds have been reduced.

In fiscal 2023, a fund for strengthening the nation’s defense capabilities was established to prepare for future increases in defense expenditures, and ¥3.4 trillion was set aside for this fund. However, such expenditures are not required for the fiscal 2024 budget. If these two special factors are excluded, it can be said that the size of the budget has effectively increased.

There is no indication that the government has made every effort to reduce its expenditures.

In the draft budget, tax revenue for the next fiscal year is estimated at ¥69.6 trillion — about the same as the current fiscal year — after a planned fixed-amount income tax cut is subtracted. Yet the tax revenue alone will not be sufficient to cover expenditures, so the government plans to make up for the shortfall by issuing ¥34.9 trillion worth of new government bonds.

The outstanding balance of national debt, including government bonds, reached ¥1.27 quadrillion at the end of fiscal 2022, up more than ¥150 trillion over the past three years. Japan’s finances, the worst among developed countries, have been aggravated further due to the pandemic.

In the draft budget, government bond expenditures, such as interest payments for government bonds, have hit an all-time high of ¥27 trillion, a ¥1.7 trillion increase from the previous year due to rising long-term interest rates and other factors.

If the government keeps relying on government bonds for its fiscal management, the outstanding debt will only continue to grow. As there has been speculation that the Bank of Japan will review its massive monetary easing policy, long-term interest rates could continue to rise. There is no time to lose for the nation’s fiscal restructuring.

The budget plan has placed a focus on measures to combat the low birth rate, such as expanded child allowances and the promotion of wage hikes to counter rising prices. There are also many areas in which priority investment should be made, such as strengthening defense capabilities and encouraging decarbonization and digitization. Social security costs will also continue to rise due to the aging of society.

It is the Diet’s role to scrutinize what spending is truly necessary and thoroughly identify wasteful budget items.

(From The Yomiuri Shimbun, Dec. 23, 2023)