Supplementary Japanese Budget Ordered

by Mary Swire, Tax-News.com, Hong Kong

16 June 2011

Japan’s Prime Minister Naoto Kan has now instructed his ministers to produce, as soon as possible, a small supplementary budget to provide additional funds for urgent reconstruction requirements in the northeast of the country.

A first supplementary 2011 budget, amounting to an initial JPY4 trillion (USD50bn), was passed in early May this year, but, with the total damage caused by the disaster is estimated at some JPY25 trillion, the government had indicated that a large second supplementary budget, to take care of the bulk of the country’s reconstruction and rehabilitation efforts, would be announced in August.

As it had been assumed that the second supplementary budget would amount to at least JPY10 trillion, the disclosure of an immediate, but smaller, package, to cover urgent short-term reconstruction needs, came as something of a surprise. While neither Kan nor Finance Minister Yoshihiko Noda would be drawn on its actual amount, calling it the “1.5” additional budget, it has been widely assumed that it will include some JPY2 trillion in expenditure.

They have, however, confirmed that, when it is proposed early next month, the new budget will not entail the issuance of government bonds for its finance, but would use “other financial resources”.

That confirmation was of significance as the second supplementary budget, which had originally been expected this month, was mainly delayed largely by the government’s inability, in the face of parliamentary opposition, to decide on how to provide for the large amount of funds required.

In particular, as Japan’s present public debt already totals around twice the size of its economy, there has been doubt over what proportion of the next stages in funding the cost of reconstruction could be found by the issue of government bonds, and what taxes would need to be increased to pay for the remainder.

A draft report by a government panel of experts has recommended that the government should issue reconstruction bonds for a limited, as yet unspecified, period, with their repayment linked to a hike in a mix of consumption, individual income and corporate taxes.

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