Photo/Illutration Prime Minister Fumio Kishida, second from left, and some of his ministers ahead of a meeting on Sept. 26 (Koichi Ueda)

Another eye-popping supplementary budget appears to be in the making after Prime Minister Fumio Kishida instructed his Cabinet ministers to compile a comprehensive economic policy package by the end of October.

Kishida on Sept. 26 outlined five pillars for the package, which comprises at least 20 specific policy areas. Ministries and ruling Liberal Democratic Party lawmakers will now likely present their lists of measures to fill those areas, even if there is no immediate need.

Steps to help mitigate the surging cost of gasoline and fuel are almost certain to be approved, given that so many households are struggling to make ends meet. But it is unclear what economic effects will arise from measures to deal with pollen issues that strike misery among millions of hay fever sufferers each spring.

LDP lawmakers were already talking about a supplementary budget in the range of 15 trillion yen ($101 billion) to 20 trillion yen to pay for the economic policy package.

The subsidy program for gasoline was initially scheduled to end in September, but the Kishida administration has decided to extend it at least through the rest of the year. If the subsidies are extended into next year, huge outlays will again be needed.

So far, about 9 trillion yen has been spent on gasoline subsidies.

Another pillar of the economic policy package concerns encouraging investment to spur domestic economic growth in semiconductors and other vital areas.

A fund controlled by the economy ministry was integral to past efforts to steer the nation toward a carbon emission-free society. The massive fund could further balloon with the call for greater investment to achieve a “green” transformation.

The Kishida administration has vastly changed its interpretation of both the supplementary budget and the reserve fund set aside in each year’s initial budget.

The finance law states that a supplementary budget should only include items and funds to deal with problems that were never envisioned under the initial fiscal year budget.

But that was blown out of the water by measures to deal with the novel coronavirus pandemic, resulting in a total outlay of 73 trillion yen in supplementary budgets in fiscal 2020 alone. The amount is about half of the initial budget for the entire fiscal year. Similar methods were taken in subsequent years.

At the same time, the government must continue to come up with the funds to pay for these large budgets. Issuing government bonds only exacerbates the central government’s woeful fiscal condition.

In the past, supplementary budgets were funded by the surplus that arose after government expenditures were subtracted from revenues. But that difference evaporated when the Kishida administration decided in late 2022 to embark on a massive five-year defense buildup plan. The surplus was one funding source set aside for that spending.

The reserve fund set aside in each year’s budget is supposed to be used to pay for emergencies, but the more common practice in recent years has been to dip into the fund to pay for various policy packages.

The 4 trillion yen in the current fiscal year budget has not yet been used, but the government might decide to tap into it to pay for some of the economic policy measures.

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