Public finance is sometimes synonymous with government finance. It deals with budgeting the revenues and expenditures of a public sector entity, usually government. Public finance also can be defined as the raising of money by governments through taxes or borrowing and the spending of it.
In Japan, the national budget and other basic matters on public finance are governed by the Public Finance Law, 1947 (Law No. 34, Apr. 31, 1947), which has been amended time to time. This report gives an insights of the Japan’s public finance in general begins with a historic overview. A special emphasis is given to the tax system in Japan for financing the public expenditures. Finally, this report makes ...view middle of the document...
To fight against stagnant economic situation, the government implemented two economic packages financed through public bonds and the ratio of public bonds to total expenditure reached at 40.3% in FY 1998.
In 1999, severe unemployment situation and low private demand slumped the economy of Japan. As a result, government decided to use contingencies for public works amounting to ¥500 billion appropriated in the initial budget to support the economic recovery. However, the formation of the Koizumi administration, the central policy shifted from economic recovery to commitment towards structural reform with better macroeconomic management. The 2004 national budget was formulated in line with the structural reforms and based on the following four concepts-
1) | Strengthening structural reforms, to achieve sustainable social security system, to expand the autonomy of the local governments, and to improve the budget formulation process, |
2) | Pursuing efficiency and cost reduction in government spending, |
3) | Prioritizing spending items in order to promote vitality of the economy and the security of society, and |
4) | Constraining government bond issuance and improving fiscal sustainability. |
Fig-1: Trends in Japan’s Public Finance: 1985-2010.
Mentioned may be made here that, in Japan the consolidated public finance is performed by both central government and the local government. The local government also has two tires-prefectures and municipalities. The administrative affairs of the central government and the local governments are stipulated below in Table-1.
The ratio of local government expenditure to central government expenditure has been increased from 23.3% in 1945 to 106.1% in 2005.
* Present status of Japan’s Public Finance:
In FY 2010, initial budget for public finance in Japan was 92.3 trillion yen which is 4.3% higher than the previous year initial budget. On the expenditure side around 22.4% of the total expenditure was allocated for national debt services. Social security services occupied 29.5% and only 6.3% were spent for public works.
On the revenue side, in FY 2010, only 40.5% came from the tax and stamp revenues. Almost half of the total expenditure was financed by issuing bonds (48%). An amount of 37.8 trillion yen (41.1% of total revenue) of special deficit financing bond were issued to finance the large budget deficit. However, the bond dependency ratio fell from 52.1% in 2009 to 48% in 2010. In FY 2010, initial budget tax revenue fell sharply by 18.9% from FY 2009. This was due to weak economic and financial condition in Japan as well as in major countries of the world. Break-down of expenditures and revenues in FY 2010 is presented in Fig-2(MOF, Public Finance Factsheet).
Table-1: Distribution of Administrative Affairs
Responsibility | Safety | Social Capital | Education | Welfare, Health, Sanitation |...