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Japan: Aftermath of the DPJ's fiscal squeeze

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In Brief

The Democratic Party of Japan (DPJ) is putting on a show in its efforts to curb waste in Japan’s bureaucracy. No ministry was spared the scrutiny of the Government Revitalisation Unit (GRU) working groups which has publically reviewed government support of a large number of projects. Is it all a show or will the DPJ effect real change?

The Ministry of Health, Labour and Welfare (MHLW) had 40 projects screened [see Table 1 below], which was the most, followed by the Ministry of Education, Science and Technology (MEST) with 35, the Ministry of Agriculture, Forestry and Fisheries (MAFF) with 32 and the Ministry of Land, Infrastructure and Transport (MLIT) with 31 not far behind. Budget allocations to the MEST’s ‘independent administrative corporations’ (dokuritsu gyōsei hōjin) were particularly well scrutinised as was expenditure by MAFF ‘funds’ (kikin) and the MHWL’s ‘public interest corporations’ (kōeki hojin).

These figures are partly a reflection of the prevalence of different organisational types amongst the semi-administrative bodies connected to particular ministries.

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Secondly, no ministry escaped the budget cuts, and all but the Ministry of Justice (MOJ) had projects recommended for abolition.

Thirdly, the budget review process delivered different outcomes to different ministries. The MAFF was told many of its projects and budget items were wasteful. It ended up with an abolition/budget cut rate of 80 per cent, the highest amongst all the ministries. Five of the 15 projects recommended for abolition were public works, but by no means all. Other ministries that were hard hit were MIAC (75 per cent), MEST and MEnv (64 per cent), and MLIT (63 per cent). In contrast, MHWL fared very well in relative terms, with only 38 per cent of its projects recommended for either abolition or a budget cut. This pattern reflects the new priorities of the DPJ government, with its emphasis on establishing a stronger social safety net.

Source: Compiled from the data in http://www.cao.go.jp/sasshin/kaigi/honkaigi/d4/pdf/s1-1.pdf

However, the larger picture shows that no ministry was either singled out for or spared the pain. The proposed cuts went well beyond public works and the ministries of pork. They cut deep into a whole range of government programs, including those in the MHLW and MEST where the DPJ has big spending plans in store. The GRU review was an exercise in cutting budgetary ‘fat’ and perceived waste across the board. It was about trimming the excess from ministry spending, eliminating projects that had no rationale except that they enabled the ministries to spend money. Some of the programs were clearly money in search of projects. The overall aim was to slim down the budget and target areas of expenditure where ministries had spawned organisational offshoots to expand their administrative fiefdoms and consume government subsidies.

The GRU explained the government’s overall objective as ‘illuminating the budget formulation process to the people and showing them how tax money was being used’. As a novel exercise in budget transparency, the highly public process was a PR coup for the new government. It certainly awed an attendee from the enemy camp, the LDP’s Kōno Tarō.

‘Budget transparency’ was part of the DPJ’s desire ‘not to repeat the budget process by the bureaucracy and for the bureaucracy’. The GRU was about ‘transferring funds from the bureaucracy to the people’ and subordinating ministry officials to their new political masters, all part of the DPJ’s desire to cut the bureaucracy down to size. If anything, the bureaucracy was more in the GRU’s sights than the LDP’s fiscal excesses.

At the same time, the GRU’s purpose did not extend to undermining the links between the LDP and one of its principal support groups – JA – the mammoth agricultural cooperative organisation, which did not feature in the proposed cuts to MAFF expenditure. Although organisations affiliated to the ministries, such as independent administrative corporations, figured in reduced or eliminated budgetary programs, JA is not an independent administrative corporation but an agricultural cooperative owned by its shareholders – the farmers. As a mammoth business organisation in its own right, JA receives few if any MAFF subsidies, although its banking system has provided a channel for government payments to farmers. The proposed cuts to the MAFF’s budget programs will not affect JA, or its electoral activities, which are conducted separately through farmers’ political leagues.

Although the GRU’s budget review process was a spectacularly successful demonstration of the DPJ’s new style of government, its significance should not be exaggerated. The outcomes of this process were recommendations only. The hard decisions lie with the Hatoyama cabinet this month. And even if the cabinet accepts all of the GRU’s recommendations, it will only be a drop in the ocean of what was both sought and required by the DPJ administration to bring down the ministries’ requested ¥95 trillion 2010 budget.

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