Thursday, October 02, 2008

But What Are You Going to Do about the Ten Trillion Yen Hole, Mr. Ozawa?

…oh… Well, Mr. Aso?


According to Ichiro Ozawa’s opening “statement”, the DPJ price tag for its new program in the works now comes in at 20.5 trillion per year in its all-options, fourth and final-year version. I assume that this is a pretty honest reckoning for now, give or take a few hundred billion, although the long-run effects of some of the items, such as the elimination of the gasoline tax surcharge (2.6 trillion) and the medical care makeover (2 trillion), are hard to control and therefore difficult to predict. The numbers do not add up to 20.5 trillion because some big ticket items are missing, such as the DPJ promise to halve corporate tax rates for small and medium enterprises. Where all this money is going to come from is vaguer, although they do conveniently add up to 20.5 trillion. According to the Yomiuri, it consists of:
4.8 trillion: Coming down on special tax breaks (business) and income tax deductions (individuals)
0.7 trillion: Selling off government property
6.5 trillion: Taking net revenue and reserve cash from the Fiscal Investment Special Account (FILP-SA) and the Foreign Exchange Special Account (FE-SA)
4.3 trillion: Cutting subsidies
1.8 trillion: Reforming government procurement (and otherwise reducing government waste?)
1.3 trillion: Reducing payments to national public servants
Some comments while I wait the announcement of the entire package:

On the expenditure side, the 2.6 trillion gas tax reduction and the 1.5 trillion loss in highway toll revenues add up to a 4.1 trillion gift to private car owners and businesses. Do the Socialists and, yes, Communist really want to support that? On the revenue side, the DPJ’s global warming countermeasures tax (DPJ 2007 Manifest 4.1, first paragraph) should counterbalance the gas tax reduction, but it’s missing from the revenue estimate. Does the LDP want to mention that? But that’s small change compared to:

The DPJ is going to dig into the two cash-cow special accounts for 6.5 trillion, or almost 1/3 of the 20.5 trillion bill. According to MOF, in FY2006, the FILP-SA and Foreign Exchange-SA had surpluses of 2.5 trillion and 2.1 trillion respectively)*. This is in the same ballpark as the 4 trillion that I dimly recall Yoichi Takahashi—ex-MOF official, Koizumi-reformist brain-trust member, and one of the pioneer treasure hunters—saying could be safely taken out of the two special accounts on an annual basis. Give the benefit of the doubt to the DPJ and assume that the government can count on a combined four and a half trillion surplus each year; that still leaves a 2 trillion shortfall to be made up by digging into reserves. Kudos to the DPJ for owning up to that, but how long can it do that on an annual basis before these most fungible of “buried treasures” are gone? Actually, if the fiscal conditions expected at the start of FY2008 continues unchanged, a business-as-usual scenario is likely to eliminate these “buried treasures” altogether by FY2011 (three years into what would be the DPJ four-year-plan) unless annual government borrowing is increased by 10 trillion.

Talk about an elephant in the room… I think I need a drink.

ADD: I just realized that the need for more debt issues depends on the maturity schedule of the existing ones. I can rest a little easier. A drink (or two) sure helped. Still, the matter needs to be looked into over the next four years (and beyond). I’ll try to remember to look for the relevant data when I have the time.

* See this post. The relevant MOF links are in the footnote at the bottom. The arithmetic behind the vanishing “buried treasures” can be easily read off the post.

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