The economic landscape of rock-bottom interest rates that fueled the government’s irresponsible fiscal expansion is beginning to change.

But the Kishida administration has avoided the pressing challenge of improving its fiscal health, which can only be done by making reductions in its colossal debt. It is even showing a stronger propensity toward putting crucial fiscal policy issues on the back burner.

We urge the administration to redouble its efforts to streamline spending and secure solid tax revenue.

The government has decided on a 112-trillion-yen ($786 billion) draft budget for fiscal 2024, which starts in April. The amount of general account spending represents the first decline in 12 years.

But the unimpressive reduction of slightly more than 2 trillion yen is due mostly to special factors. The proposed budget shows no change in the government’s tendency to ramp up spending.

Social security outlays continue growing owing to the aging of the nation’s population, while additional expenditures are earmarked for Prime Minister Fumio Kishida’s key policy initiatives aimed at beefing up the nation’s defense capabilities and enhancing policy support for child-bearing and child-rearing.

The government has pledged to downsize its bloated budget after hefty spending in response to the COVID-19 pandemic, saying the fiscal policy will be brought “back to normal.” But there is still a long way to go to achieve this goal.

The draft budget includes a reduction of 4 trillion yen in the reserve fund, which was used in an undisciplined manner during the pandemic, but the amount is still set at 1 trillion yen higher than usual to finance measures to soften the impact of higher prices and promote wage hikes.

The weight of the initial budget in the government’s overall spending agenda has fallen in recent years. It has become customary for the government to formulate huge supplementary budgets under the pretext of stoking economic growth, as the Kishida administration did this autumn.

Its penchant for large extra budgets has been the main factor behind the deteriorating state finances.

The government likes to say the initial budget demonstrates its efforts to restore fiscal health but it uses supplementary budgets each fiscal year as a backdoor for pumping up spending. This is no way to cure budget ills.

Serious problems also loom in the context of tax revenue that should not be overlooked. The fixed-amount tax cuts Kishida pushed through have made a big hole in tax receipts, raising the fiscal deficit by more than 3 trillion yen. The government will issue 35 trillion yen in new bonds in the fiscal year starting in April. In doing so, it will remain heavily dependent on debt financing.

There are many uncertainties concerning expected tax hikes to finance higher defense spending and additional policy support to reverse declining birthrates. The government is violating basic fiscal principles by introducing policies that require new permanent expenditures without securing solid revenue sources to fund them.

The Kishida administration keeps putting off actions to tackle politically challenging issues, preferring to introduce policies to bolster its popularity rather than requiring taxpayers to shoulder a higher financial burden. This irresponsible fiscal stance is evident in the draft budget for the next fiscal year. The government’s fiscal policy management is reaching a critical juncture.

After many years of remaining at near-zero levels, long-term interest rates have started creeping up, prompting the Finance Ministry to significantly raise its assumed interest rates for estimating debt-financing costs.

Government outlays for debt service payments will balloon to 27 trillion yen in fiscal 2024. If the Bank of Japan starts moving toward an “exit” from its aggressive monetary easing policy, interest rates will spike further.

The total of government bonds outstanding will hit 1,100 trillion yen at the end of the next fiscal year in March 2025. Increased interest payments inevitably force cuts in expenditures for necessary programs.

To reduce the risk of a serious fiscal crisis, the government needs to reform both its spending and income structures.

Political parties are responsible for working to ensure the long-term financial sustainability of the government and hand down healthy state finances to future generations. We strongly urge the Diet to engage in serious and meaningful debate on the draft budget.

--The Asahi Shimbun, Dec. 23