Skepticisms on Takaichi’s Public Finances

Prime Minister Sanae Takaichi insists that she would promote “responsible and proactive public finances” as the policy for the Lower House election with highest priority. However, it is unclear what “responsible” and “proactive” mean. Although she stresses necessity for strategic investment, markets respond to her economic policies with skepticisms about the future financial balance of the government of Japan. 

The Liberal Democratic Party (LDP) raises “strong economy” at the first policy for its election campaign, prior to local revitalization, diplomacy and security policy, social security and constitutional amendment. Takaichi’s portraits with her smile are featured between the pages of campaign flyer, indicating that the party is heavily dependent on her popularity among the people.

 

The platform defines responsible and proactive public finances as creating positive cycle of investment and growth through emboldened investment, powerful economic growth and increase of tax revenue with sustainability of public finances. “We are reducing the ratio of governmental debt against GDP to achieve credibility of markets,” says the platform.

 

It also says that Takaichi government will say goodbye to supplemental budget. Although previous prime ministers have been formulating supplemental budget to promote their own policies in every fall, Takaichi declares that all the necessary policies will be included in main budget in every spring. And she proposes that she would mobilize national budget through multiple fiscal years, setting new category in budget for investment.

 

It has been a common knowledge that national spendings must be concluded within a fiscal year. “Annual spendings should be covered by revenue of the same fiscal year,” says Article 12 of Public Finance Act. It is still unclear how mobilizing national budget through multiple fiscal years can be compatible with the requirement of that fundamental principle of public finances.

 

Takaichi Cabinet approved last month a 122 trillion yen of FY2026 budget bill, on which the Diet discussion is delayed as Takaichi dissolved the House of Representatives. Although Takaichi argued that primary balance of the government marked surplus for the first time in these 28 years, the government is going to issue 29 trillion yen of new government bond. Opposition parties criticized that the size of budget bill was too big.

 

After Takaichi took the office of prime minister last October, interest rate of 10-year Japanese government bond (JGB) has been rising, indicating decline of value of JGB. It marked 2.38 percent on January 20th, which was equivalent with the level of 27 years ago. The fluctuation of bond market is interpreted as an indicator of anxiety about accumulation of debt for future generation.

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