Japan's 1986 Budget Is Under Fire

Times Staff Writer

The Japanese government has come under fire both at home and abroad for what critics say is an austere, inward-looking 1986 budget that is unlikely to live up to the expectations of Japan's allies or to improve this country's living standards, which still lag behind those of the United States and much of Western Europe.

For the first time in years, the debate is not so much about Japan's defense expenditures--in the past deemed too small in Washington, too large in Tokyo--as it is about the adequacy of the 54.1-trillion-yen ($270.4 billion) budget as a whole. Prime Minister Yasuhiro Nakasone has been placed in the difficult position of having to live up to a longstanding promise to the United States to promote expansion in the Japanese economy while at the same time keeping up with a Gramm-Rudman-style program of government cost cutting at home. (The Gramm-Rudman Bill recently signed by President Reagan mandates a balanced budget and automatic cuts in government spending programs if Congress does not reduce spending. The bill is expected to face legal challenges on constitutional grounds.)

Nakasone's critics, however, argue that the $6.5 billion that the government must spend every year for the next four years to service and pay off government bonds for everything except construction represents an inappropriate use of public money. The government's goal is to free itself from reliance on deficit financing.

Steady Decline in General Expenditures

Economists and editorial writers in increasing numbers are saying that Japan now must reflate--partly to live up to the expectations of foreign countries that accuse Japan of sitting on billions of dollars in trade surpluses last year and partly to give better housing and public services.

Nakasone's critics point to a steady annual decline in general expenditures for the past five years, freezing of the growth of public works spending for the past seven years and a failure to stimulate housing starts, which have declined every year for the past decade.

"Looking at the budget from an international perspective, it is not satisfactory," said Isamu Miyazaki, director of research at Daiwa Securities in an interview with the Yomiuri newspaper. "Solving Japan's trade imbalance with foreign countries is the most important goal for the Japanese economy, and a high growth rate is absolutely essential to achieve that." Miyazaki added that he doubts that the budget for the 1986 fiscal year beginning April 1 will be able to reach the 4% growth rate predicted by government economists.

His views were echoed by the influential Asahi newspaper, which argued that demands for Japan to reflate its economy are bound to come up during the seven-nation economic summit here in May.

"While the responsibility for the trade imbalance between Japan and the rest of the world--primarily with the United States--is not Japan's alone," the Asahi said, "there is little doubt that a budget that has shrunk consistently for the past five years has encouraged us to depend on exports for growth."

Criticism From Pro-Government Journal

Nakasone's response has been to stress that the 4% growth rate will be achieved. "Some bankers and economists are pessimistic," the prime minister told reporters Tuesday, "but I am not worried since the government is taking every possible measure (to reflate the economy)."

But the unkindest cut of all came from the normally pro-government Japan Economic Journal, which criticized Nakasone's budget for "pretending to stimulate demand" by starting three major projects this year--two bridges and a railway extension--but then failing to fund them adequately. Although one of them, a Tokyo Bay bridge, is expected to cost $5.75 billion over the next 10 years, government spending on it this year will be no more than $30 million. "We have no complaints about the soundness of the projects, but we cannot help having doubts as to their effectiveness in generating demand," the journal said.

Western diplomats here also lament the absence of any encouraging signs of an improvement in Japanese living standards. An increase in a tax break for people building new homes from the equivalent of $750 to $1,000 was dismissed by a representative of one lumber exporting nation as "insignificant" in terms of encouraging imports. U.S. diplomats, however, are said to be finding themselves in a particularly difficult position when arguing against the austere Japanese budget. The Japanese, after all, are behaving with the sense of fiscal responsibility that the Gramm-Rudman amendment will soon ask U.S. officials to adhere to.

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