Budget for Revitalizing Abenomics

Ministry of Finance finished accepting budget request for FY2016 on Monday. Total amount of the request from ministries expanded to ¥102.4 trillion, renewing highest record for three consecutive years. Although MOF is going to reduce the amount by ¥5 trillion, spending of Japanese government seems to have no end. Here is a question: Is Abenomics really working?

The main reason for swollen budget request would be attributed to social security and national deficit. Ministry of Health, Labor and Welfare requested ¥30.7 trillion, increasing by 2.5% from last year, with further demand for medical care or nursery. Request of MOF also marked new record with ¥26.1 trillion, increasing by 11.1%, to redeem for government bonds issued in the past.

Prime Minister Shinzo Abe has been encouraging active spending for his economic policy called Abenomics or Local Revitalization. It is usual that bureaucrats target this kind of political incentives to reach their unachieved goal. Cabinet Office created new subsidy for local government. Ministry of Land, Infrastructure, Transport and Tourism requested ¥20 billion for promoting “compact city,” a new concept for reconstructing city centrals. For supporting job search for women in raising children, MHLW demanded ¥15 billion.

FY2016 will be the first year for the fiscal project of turning governmental budget to the black in 2020. While MOF is serious about pressing down the total amount of governmental spending, demands from each ministry is steeply increasing. In addition, most part of the increase stems not from policy–oriented budget, but obligation for fundamental measures the government has to take.

According to a report of Cabinet Office in July, the governmental budget in FY2020 would still have ¥6.2 trillion of deficit even based on nominal 3% growth in Japanese economy. Abe has not achieved valid answer for this contradiction between fiscal consolidation and economic growth.

Nevertheless, demand from Ministry of Defense reached new high of ¥5.9 trillion, with 2.2% increase. For defending isolated islands, the ministry demanded to purchase 36 mobile combat vehicles and 12 tiltrotor aircrafts called Osprey. While diplomatic improvement has not achieved any major progress, Abe administration is enthusiastic for preparing for arms race with China. Under broad concern over steep decline of world economy, Japanese government is trying to deal with it through vulnerable fiscal policy.