Koizumi's folly strikes again

The Daily Yomiuri, Asia News Network, Tokyo

Will Prime Minister Junichiro Koizumi's administration repeat its previous folly?

We cannot help but think so when we look at the planned supplementary budget, whose outline was finalized on Thursday. We see no hint of an administration attempt to lift the nation's economy out of its deflationary trend.

A possible rejuvenation of the national economy will only be delayed yet again.

The compilation of the latest supplementary budget is said to be primarily designed for the central government to deal with the expected drop -- totaling 2.8 trillion yen -- in fiscal 2002 tax revenues.

Yet the tax revenue drop is undoubtedly the result of the mismanagement of the Koizumi Cabinet, which has failed to come up with any effective measures to deal with the accelerating deflationary trend.

In compiling fiscal 2001's two supplementary budgets, designed to tackle the worsening job market, Koizumi adhered to his official pledge of limiting that fiscal year's new issuance of government bonds to 30 trillion yen. Therefore, government spending was restrained, resulting in inadequate antideflation measures.

Fiscal 2001 tax revenues ended up falling short of even the revised projection the government made after both supplementary budgets had been compiled. The shortfall, due mostly to plunges in corporate tax revenue, was more than 1.6 trillion yen.

Tax revenue shortages, stemming from the administration's misreading of economic trends and its economic mismanagement, have been occurring since fiscal 2001.

The Japanese economy has fallen into a vicious circle of a progressive deflationary trend, deteriorating business performance, deepening unemployment and declining tax revenues.

Unless these trends are faced squarely, the nation's economy may sink.

In this respect, the administration failed to shake off conventional wisdom when it compiled the latest supplementary budget. Unless the administration puts top priority on a strong deflation-busting stance, the compilation of an supplementary budget will be meaningless at this time.

The government does need to take measures to improve the employment situation and provide generous support to small and midsize businesses to strengthen the safety nets for protection against the ill effects of accelerated disposal of banks' bad loans. Yet these measures alone would be only makeshift steps taken in hindsight.

At this critical stage, when stock prices are hovering at a low level and the job market is deteriorating, it is more important for the government to focus on the intensive implementation of projects leading to an immediate expansion of job opportunities. Therefore, a supplementary budget made now needs to effectively pave the way for the economy to pull itself out of the deflationary trend.

Although the latest supplementary budget earmarks 1.5 trillion yen for public works, it is not powerful enough as a pump-priming measure. The central government is assuming that the overall amount of public works will expand, in that it is asking local governments to implement projects. Yet, how far the local governments, with their own deteriorating fiscal situations, can follow the central government line is questionable.

The supplementary budget will, in effect, create a so-called 15-month budget, in which this fiscal year's supplementary budget will combine as a package with next fiscal year's regular budget to be implemented in a continuous manner over that period.

The fiscal 2003 budget will probably provide for more spending in four specific areas, in line with the structural reforms advocated by Koizumi, including urban renewal and the environment.

The administration, for instance, may go so far as to compile a supplementary budget that advances the implementation of such spending. In doing so, the administration must call on all of its wisdom and ingenuity.

With a supplementary budget that contains only makeshift measures, we can hardly expect the nation's economy to find its way out of its current plight.

Koizumi must clearly display a firm determination to lift the economy out of its deflationary phase.