Japan Press Weekly

Tweet

2012 November 14 - 20 [FINANCE]

Special public bonds law will distort fiscal discipline

The Democratic, Liberal Democratic, and Komei parties together forced through the latest extraordinary Diet session a bill on special measures for the automatic issuance of deficit-covering government bonds without Diet approval until fiscal year 2015.

The three parties took advantage of the about-to-be announced dissolution of the Lower House and enacted the bill in order to open the way for more large-scale public works projects with no worries about the source of funds whatever political party takes office after the general election.

They are, in fact, calling for Japan’s recovery using 160 trillion yen by 2030 (DPJ), a stronger Japan using 200 trillion yen in the next 10 years (LDP), disaster-preventing measures using 100 trillion yen in the next 10 years (Komei). All these are, however, conventional public works projects which include the construction of expressways, bullet train lines, and ports and harbors.

Prime Minister Noda Yoshihiko in regard to the bill said, “Even if we fall to an opposition party, we will work with it.” At a Lower House Budget Committee meeting on November 12, he expressed his intent to maintain enforcement of the budget even if a regime change occurs as a result of the general election.

The Public Finance Act prohibits the government from issuing bonds because of the deep concern over Japan’s past mistakes. To raise funds for wars in the past, Japan issued a huge amount of national bonds resulting in the collapse of national finance and the endangerment of people’s lives.

Article 83 of the post-war Japanese Constitution stipulates, “The power to administer national finances shall be exercised as the Diet shall determine.” Thus, everything including ways to secure financial sources needs Diet approval.

Article 86 of the Constitution states, “The Cabinet shall prepare and submit to the Diet for its consideration and decision a budget for each fiscal year.” In short, a budget should be decided on an annual basis.

Japanese Communist Party representative Sasaki Kensho on November 15 at the House of Representatives plenary session said, “What do you think will happen if we allow the issuance of additional bonds for another four years. Regardless of a size of a budget, national bonds will be freely issued to cover deficits. This will lead to a limitless wasteful expenditure.”

Sasaki went on to say, “Each time the government intends to issue bonds, it must ask for Diet authorization in principle. The single-year budget principle is a fundamental rule that is in place to maintain fiscal discipline.”

Successive governments have accumulated enormous budget deficits caused by large public works programs. No doubt, a budget without such a rule will greatly distort fiscal discipline.