Q+A-Will Japan’s non-tax revenues plug budget hole?

(For more stories on the Japanese economy click [ID:nECONJP])

By Hideyuki Sano

TOKYO, Jan 27 (BestGrowthStock) – Credit rating agency Standard and
Poor’s has threatened to cut Japan’s government bond rating
unless it produces a credible plan to rein in its soaring debt,
despite the administration’s efforts to limit new debt issuance
for the fiscal year from April. [ID:nSGE60P08I]

With its tax receipts sliding in the wake of the financial
crisis, Tokyo will have little choice in the near term but to
depend on trillions of yen in “non-tax” revenues held in special
accounts to keep its massive debt under control.

The government is planning to use 10.6 trillion yen ($120
billion) of such reserves to balance a record 92.3 trillion yen
budget for the fiscal year from April, while acknowledging it has
little room left to tap such revenue in future.

Most such savings were kept secret by the finance ministry
until a few years ago, fuelling speculation that it has more
“hidden treasure”, an allusion to a legend that Japan’s medieval
rulers buried gold to hide it from enemies.

The government has so far limited its new borrowing plans to
44.3 trillion yen for fiscal 2010/11, just about keeping to a
promise not to go over 44 trillion yen to avoid a possible credit
downgrade as public debt climbs to near 200 percent of GDP.


Non-tax revenues include public hospital charges and rents
from government-owned buildings, but the largest contributions
come from foreign exchange reserves and other cash held under the
government’s Fiscal Investment and Loan programme.

Under that programme the government lends funds it borrows
from markets to state-owned enterprises and public projects.

The account has produced a surplus of several trillion yen in
recent years as funding costs are much lower than lending rates.

These profits had been kept in the government’s loan
programme account for years, outside the general budget.

In 2006/07, then-Prime Minister Junichiro Koizumi shifted 12
trillion yen from the account to keep new bond issues below 30
trillion yen. Before that, few outside the Ministry of Finance
were aware of this pool of funds.

Governments have delved into the account many times since
then, and ministry officials say the surplus saved from past
profits has been used up.


The initial budget for the fiscal year ending in March
included 9.2 trillion yen of non-tax revenues, of which 2.4
trillion yen came from foreign exchange reserves and 4.2 trillion
yen from the loan programme.

Next fiscal year’s budget, under deliberation in parliament,
includes 10.6 trillion yen of such reserves, including 2.9
trillion yen from foreign exchange reserves and 4.8 trillion yen
from the loan programme.


It largely depends on how the world’s No.2 economy picks up.

The government would need to increase bond issuance from the
planned 44.3 trillion yen next fiscal year if the economy,
already mired in deflation, slips back into recession and tax
revenues are dented.

Finance Minister Naoto Kan has said there is no need now to
consider crafting an extra budget for next fiscal year to prop up
Japan’s economy, which has only recently emerged from its worst
recession since World War Two. [ID:nTOE60K03O]

But bond investors, who worry about Japan’s colossal public
debt, fear that the 4-month-old government may yet be tempted to
spend more to give a boost to the economy ahead of a mid-year
upper house election in July or August.

If tax revenues undershoot the current government estimate of
37.4 trillion yen for next fiscal year, the government might need
to issue deficit-covering bonds to cover any revenue shortfall.
($1=89.36 Yen)


Q+A-Will Japan’s non-tax revenues plug budget hole?