Japanese Prime Minister Yukio Hatoyama’s new government got a harsh reality check yesterday as requests for funds for ambitious new spending programs came up against the country’s huge debt and expected revenue shortfalls.
Concerns the government will have to borrow more to fund its programs aimed at putting more money in the hands of consumers and to cover a gap in tax revenues due to a recession helped push up Japanese government bond yields, with the five-year yield hitting its highest in almost two months.
The Democrats took power a month ago after defeating their long-dominant rivals in an election marked by a pledge to end the practice of bureaucrats compiling budgets by adding up projects and presenting the total to politicians for rubber stamping.
Critics have said that resulted in policies and spending programs that reflected the priorities of individual ministries rather than a comprehensive vision outlined by political leaders.
But Hatoyama’s Cabinet ministers, who on Thursday presented what local media said were record requests totaling more than ¥90 trillion (US$996 billion) for fiscal 2010-2011, which starts in April, have yet to demonstrate that they can do much better.
“I think the perception that the new government is spending like crazy without seeing the source of the money will be sufficiently worrisome that the government will have to do something,” said Sophia University professor Koichi Nakano. “It may not be too late. The budget process has only started ... There is still room for a reassertion of central leadership.”
Finance Minister Hirohisa Fujii told reporters he wanted to limit bond issuance in the 2010 to 2011 fiscal year to below the ¥44 trillion earmarked for this fiscal year.
But the goal looked increasingly in doubt given the size of initial requests by ministries, which include ¥7.1 trillion for promised programs such as child allowances and an end to a gasoline surcharge.
Hatoyama now faces the tough task of keeping key campaign pledges without fanning fears in financial markets and among the public about further inflating a public debt that is already nearly 200 percent of GDP, the biggest among advanced nations.
“It is absolutely vital that we keep our campaign promises, because trust in the government is essential,” Fujii said after a Cabinet meeting.
“The message I left with other Cabinet members is that they should cut what’s not necessary but spend money on what we need,” he said.
Hatoyama has come under fire among some analysts and media for failing to articulate a vision that will allow the government to set priorities and make tough spending decisions.
And National Strategy Minister Naoto Kan, who heads a new body charged with overseeing the budget process along with the finance minister, has so far been mostly absent from the debate.
“They need to send out the message that Hatoyama and Kan are on top of things and know what they are doing, but they haven’t done that,” Nakano said.
Finance Minister Hirohisa Fujii told reporters he wanted to limit bond issuance in the 2010 to 2011 fiscal year to below the ¥44 trillion earmarked for this fiscal year.
But the goal looked increasingly in doubt given the size of initial requests by individual ministries, which include ¥7.1 trillion for promised programs such as child allowances and an end to a gasoline surcharge.
Hatoyama now faces the tough task of keeping key campaign pledges without fanning fears in financial markets and among the public about further inflating a public debt that is already nearly 200 percent of GDP, the biggest among advanced nations.
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