Font size: 
Against a backdrop of flat, if not shrinking, tax revenues, projected at 53.6 trillion yen (US$470 billion) for next year, primarily caused by the decreasing and aging population, the first budget drafted by the Fukuda Cabinet slightly lessens dependence upon Japanese government bonds for the second successive year. Finance Minister Fukushiro Nukaga reportedly said that this downsizing of the debt reliance, however minor, is important to stress the government's determination to stop budget expansion.
Despite Cabinet resistance, the Finance Ministry also reduced expenditures across the board, except for social security, by nearly 21.8 trillion yen (US$190 billion), including priority items such as education. One of the notable cuts was a 4 percent reduction in official development assistance, Japan's foreign aid program and traditionally its single most vital foreign policy tool.
A new taxation scheme was not adopted, apparently because the Cabinet and the ruling bloc dare not take such a risk ahead of upcoming elections, especially after their resounding defeat in Upper House elections last October. Instead, they managed to devise a few tentative measures.
For one, some 9.8 trillion yen (US$86 billion) was allocated to supplement funds for debt repayment. These funds were made available out of the Special Account Reserve, traditionally put aside to stabilize foreign exchange, or for road construction and other emergencies. Some people call it "the hidden treasure beneath the government quarters." This fund allocation is to be applied to the 2008 budget only.
Another tactic could be more controversial if it were not just a temporary fix. Pushed by growing concern about widening revenue disparity between urban and rural areas, some 370 billion yen (US$3.2 billion) is to be transferred to the rural municipalities out of corporate tax received by Japan's three largest municipalities of Tokyo, Osaka and Aichi.
Tokyo Governor Shitaro Ishihara – author of the bestseller "The Japan That Can Say No" -- did express opposition to the move, but could not withstand government pressure.
With these and other measures, the Cabinet has managed to construct a budget for next year, but what about the future? A taxation study group within the ruling Liberal Democratic Party recently suggested that consumption tax should be raised in the near future, at least to supplement the ever-increasing social security funds.
The Cabinet has pledged to achieve a balanced budget by 2011. In fact, the budget for next year reverses a five-year trend of a decreasing deficit. More ominous still, the accumulated balance of outstanding government bonds is expected to increase slightly, reaching 553.3 trillion yen (US$4.8 trillion) by the end of 2008. The Finance Ministry's chart showing the yearly amount of outstanding bonds indicates a dramatic and constant steep rise.
Japan's government debt is the largest among the Group of Eight industrialized nations, putting the burden on each and every Japanese citizen, including newborn babies, of 4.33 million yen (US$38,000). For this reason, a Western rating firm once evaluated Japan's government bonds at a level lower than those of Botswana.
