V
CURRENT JAPANESE FISCAL CONDITION
| 1. Current Japan's Fiscal Condition |
As a result of the circumstances mentioned in chapter II '' History of Public Finance,'' the Japanese fiscal conditions have deteriorated significantly. When comparing our country's fiscal condition to a family budget earning an annual income of 6.46 million yen, the monthly income will be approximately 538,277 yen (Tax + other revenues), within which 207,746 yen will have to be used for loan payments (national debt service). So, approximately 330,531 yen will be left as a disposable income. On the other hand, this family requires money toward household expenditures, amounting to 563,240 yen, monthly, and another 195,033 yen will be used as allowance sent to the children (local allocation tax grants, etc.), but cannot support this with just salary income, and borrows loans of 432,671 yen (government bond issue). the amount of loans continue to increase annually, and has accumulated to become approximately 68 million yen. |
The gap between the general account expenditures and the tax revenue has widened especially in recent years, and this situation has caused an increase in the government bond issues. As for expenditures, the increase of expenditures has been caused by the public investment related expenditures aiming to stimulate economic growth and the social security related expenditure due to the aging society or other factors. Though, the total amount of expenditures recorded its peak in FY2000, the general expenditures have declined recently through the government's fiscal consolidation efforts. On the revenue side, the amount of total tax revenues reached the peak of 60 trillion yen in FY1990. But they have fallen significantly due to the economic slowdown and successive tax cut. In FY2004, the ratio of tax revenues to the general expenditures records will be about a half (50.8%). |
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| (Note | ) The permanent tax reductions (national and local) which substantially exceed 6 trillion yen (full effect basis) is continuing since FY 1999. |
The necessity to make up for revenue shortfall and increasing expenditures caused issuance of government bond. Bond issuance in FY1999 reached its record high of 37.5 trillion yen. In spite of the recent effort to decrease the bond issuance, the bond issuance is still high and ratio of bond dependency hit a record high of 44.6% in the FY2004 budget. The amount of outstanding bonds has continued to rise at an increasing rate, and it is expected to amount to around 483 trillion yen. The amount that will be equal to approximately 12 years worth of general account tax revenues. In other words, the amount will be approximately 3.78 million yen per person and 15.12 million yen per family of four members. This will leave a great burden to the current and future generations. |
Chart V - 3 Trends of Government Bond Issues (FY2004 Budget) |
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| (Note) FY1975-2002: settlement, FY2003: revised, FY2004: budget |
Chart V - 4 Trends of Accumulated Government Bonds Outstanding
(Click chart for larger view) |
| When stacking up the outstanding debt amounting 483 trillion yen | ||
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| When the amount of outstandng debt is stacked up in 10,000 yen bills, the height will be 4,830km, which is 1,300 times higher than Mt. Fuji (3,776m), and 500 times higher than Mt. Everest (8,848m) | When the amount of outstanding debt is stacked up in 10,000 yen bills and laid aside, the length will be 1.4 times longer than distance between Nemuro and Amami Osima (3,548km) | |
As a result of the successive issuance of the government bonds, the cost of overall national debt services reached approximately 17.6 trillion yen in the FY2004 budget, amounting to 20.5% of general account expenditures. 8.7 trillion yen of this cost is for interest payments, and amounts to 10.6% of general account expenditures. The amount of outstanding bonds have increased annually, along with annual bond issuance, but interest payment have been maintained at approximately 9 trillion yen, due to the historically low interest rates. If interest rates take a rising trend along with future economic recovery, interest payments will also increase accordingly. |
Chart V - 5 Trends of Interest Payment of Government Bonds (FY2004 Budget) |
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| Note: FY1975-2002:settlement, FY2003:revised, FY2004:budget |
The amount of long term debt outstanding (sum of bonds outstanding, national government long term debt such as outstanding bonds, and local government long term debts as local bonds outstanding) is expected to reach approximately 719 trillion yen at the end of FY2004, still keeping our country in a severe fiscal condition. |
Chart V - 6 Long Term Debt Outstanding of Central and Local Governments |
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| Note 1. | Postal Service Special Account and Postal Saving Special Account were abolished at the end of FY2002. The figures in parenthesis of FY2002 exclude their liabilities. | |
| Note 2. | GDP for FY2003: estimates. FY2004: forecast. | |
| Note 3. | The outstanding debt of the Fiscal Loan Fund Special Account at the end of FY2004 is estimated to be approximately 124 trillion yen. |
Though the total amount of general expenditure have kept growing due to the rapid increase of elderly population and continuous economic measures after the fall of the bubble economy. On the other hand, the increase of outstanding bonds has increased the ratio of national debt services within the general account expenditure. Consequently, the ratio of general expenditures used for various policies have decreased, weakening the fiscal strength to correspond to society's needs. |
Chart V - 7 Structure of General Account Budget (FY2004 Budget) |
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It has become a worldwide understanding that the accumulation of fiscal deficit will be a mid-term to long-term impediment to economic growth. Fiscal deficit causes various problems, such as increased rigidity of finances and unfairness between generations. Futhermore, it has been widely pointed out that massive outstanding debts are leading to concerns about the sustainability of government systems. With the aging of society, fiscal deficit will be an obstacle to Japan, and become a tremendous drag against the realization of dynamic economy and society. |
Chart V - 8 Problems of Fiscal Deficits |
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| Source: Fiscal System Council |
