The Finance Ministry's draft general-account budget, which was unveiled Thursday, is the first under the administration of Prime Minister Junichiro Koizumi. Living up to his "fiscal reform" slogan, he has kept his pledge to cap bond issuance at 30 trillion yen. The borrowing limit, however, is a "double-edged sword" because its artificial rigidity could create more problems down the road.
The positive side is that the bond cap forces spending cuts, particularly for public works projects that have fueled the politics of pork for so many years. The downside is that a number of accounting gimmicks -- such as using special accounts as cover for deficits -- have been employed to make up for shrinking tax revenues. The "hidden deficits" created by such methods will come to the surface in the future, adding to the debt burden.
At first glance, the draft budget looks good, with its positive spin on fiscal reform. But lurking underneath is an array of formidable problems that stand in the way of a balanced budget. Prime Minister Koizumi as well as Finance Ministry officials describe it as a "reform-oriented budget." That is only partly true. Mr. Koizumi has, if anything, made only a small step toward putting the budget -- and the economy -- back in shape.