The alligator’s mouthThe JoongAng Ilbo recently carried an interesting diagram on Japanese government spending and revenue that looks like an alligator with its mouth wide-open. Yasushi Manago, Japan’s deputy vice minister on budgetary affairs, showed the diagram to Korean bureaucrats during a Korea-Japan working-level finance ministerial meeting in Tokyo, as a warning against government profligacy.
Japan’s government’s spending has been spiraling upward to sustain a feeble economy and rapidly ageing society while tax revenues turned downward, and the resulting graphic image was that of a yawning alligator. The country’s sovereign credit rating was downgraded earlier this year as fiscal debt reached the level of double the gross domestic product. Its debt-to-GDP ratio beats the 150 percent record of Greece, the euro zone’s ticking time bomb.
Yet Japan can do little to turn around its finances as it can’t lower interest rates from the zero level and cannot push up the foreign exchange rate due to trade surpluses. Its fiscal options are mired in the alligator dilemma.
Manago concluded that Japan has failed in long-term planning after shifting its budgetary focus to reinforcing the social security system in 1973. “It was too late to turn back when we sensed something wrong,” he said.
Having experienced the currency crisis in the late 1990s and the global financial meltdown in 2008, Korea has also surrendered a balanced budget. Instead it takes comfort in the idea that the government debt ratio hovers below the average levels of the Organization of Economic Cooperation and Development member countries.
But our society is also quickly graying and politicians are promising populist welfare proposals ahead of next year’s general and presidential elections.
Japanese lawmakers have been cowardly. They dared not raise taxes because any attempt to raise the sales tax would have translated into a major election loss. Instead they went on endorsing debt issues and spending. We are following in their footsteps. Our politicians don’t have our future in mind.
Finance Minister Bahk Jae-wan, however, pledged that the government will strive to restore fiscal health. The projects to build Sejong City and restore the country’s four major rivers cost 10 times more than the original estimates of 2 trillion won ($111.9 billion). The government must get its act together if it does not want to feed the alligator with our futures.