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Draft budget for FY 2017 pushes fiscal rehabilitation further into future

The Japanese government's draft budget for fiscal 2017, set on Dec. 22, fell short of fundamental spending reforms, after a proposal to increase the financial burden on some seniors to keep down social security costs was met with aggressive protest from the ruling Liberal Democratic Party (LDP)'s junior coalition partner Komeito.

The government is banking on a recovery in tax revenue -- a pillar of the so-called "Abenomics" policy mix -- in the 2017 fiscal year to stop the government's debt from ballooning further, but the chances of achieving fiscal rehabilitation seem to be diminishing.

When the ruling party re-examination of the "high-cost medical expense system" that puts a cap on co-pays required for medical treatment drew to a head on Dec. 14, LDP policy chief Toshimitsu Motegi and his Komeito counterpart Noritoshi Ishida met in a room at the National Diet Library. Motegi pushed for an increase in the financial burden shouldered by some seniors, but Ishida resisted, asking that the current rates be maintained.

To keep the uptick in burgeoning social security costs resulting from Japan's low birthrate and aging population to the government's goal of 500 billion yen, the Ministry of Health, Labor and Welfare (MHLW) in late November drafted a proposal to increase the monthly cap on co-pays for seniors aged 70 and over within a certain income bracket from the current 12,000 yen to 24,600 yen.

The proposal, however, was met with strong opposition from Komeito, which has its eye on the Tokyo Metropolitan Assembly election next summer. It was also opposed by the party's power base, the religious organization Soka Gakkai, on the grounds that it was too big of a burden on its supporters.

The debate between the two ruling parties devolved into a haggling race with principle thrown out the window. The LDP suggested a compromise of 18,000 yen, and then 15,000 yen. Finally, when Motegi informed Ishida that the LDP would consider a compromise of 14,000 yen, Ishida capitulated.

The outcome fell short of expectations held by both the Ministry of Health, Labor and Welfare and the Ministry of Finance, forcing them to cut back on subsidies allocated to the Japan Health Insurance Association, whose membership comprises employees of small to mid-sized companies.

In an effort to alleviate the anxieties Japan's young people have about their futures, the government is aiming to re-examine its pension and medical care systems. But such reforms are far from becoming a reality, since the government was forced to make great compromises on its plan to cut back on favorable treatment given to seniors with a certain level of financial security.

Meanwhile, however, old-school pork-barrel spending has made a comeback. "The LDP made a strong showing in the elections, but it has recorded defeat after defeat (recently among lawmakers affiliated with farmers' organizations)," LDP Secretary-General Toshihiro Nikai said at a November meeting of the National Federation of Land Improvement Associations, of which he is chairman. "This year, we're intent on doing better."

The land improvement-related budget, which entails agricultural public works such as the construction and maintenance of irrigation channels, came to 577.2 billion yen in fiscal 2009, but dropped to about half that during the time the then-Democratic Party of Japan had the reins of government. Last year, Nikai announced that budget amounts for land improvement would promptly be brought back up to its former levels. In the draft budget for the 2017 fiscal year, the amount allocated to land improvement was set at 402 billion yen, up 20 billion yen from fiscal 2016. An LDP lawmaker affiliated with farmers' organizations expressed excitement, saying, "If you add on the fiscal 2016 supplementary budget, it comes out to exactly 577.2 billion yen."

The increase in the budget allocated to land improvement was also meant to strengthen the Japanese agricultural sector in preparation for the effectuation of the Trans-Pacific Partnership (TPP), but U.S. President-elect Donald Trump has already stated that the U.S. will drop out of the TPP once he assumes the presidency. The increase in public works spending when the chances that the TPP will go into effect are slim has made the budget allocation appear even more like pork-barrel spending for the sake of winning elections.

Efforts to establish government scholarships as part of the Abe administration's cherished goal of "building a society that encourages active engagement of all citizens" have flopped as well. Although the Ministry of Education, Culture, Sports, Science and Technology (MEXT) had been considering handing out scholarships in fiscal 2018, securing the funds for such grants is proving to be incredibly difficult. LDP lawmakers with connections to the education sector, however, have insisted that Prime Minister Shinzo Abe wants to make the distribution of such scholarships possible at an early date. Funds for scholarships in fiscal 2017 will be secured by cutting back other expenses, but there are no prospects yet of where funds will come from in the 2018 fiscal year onward.

As the central and local governments are over 1 quadrillion yen in debt, fiscal rehabilitation will be difficult to achieve through economic growth only. However, due to political pressures, not enough reforms in spending have been incorporated into the fiscal 2017 budget.

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