Japan's huge fiscal stimulus stuck in implementation trap

July 05, 2022: Japan has been left with an unspent budget totalling 22.4 trillion yen ($161.41 billion) from the last fiscal year, a draft seen by Reuters showed on Tuesday, which analysts say may raise questions about the way stimulus measures are implemented.

The excess amount in the budget for fiscal 2021 came on top of some 30 trillion yen that was carried over from the previous fiscal year, the draft showed. In addition, a precedented amount of 6.3 trillion yen from the last fiscal year's budget ended up being "unneeded," it showed.

The figures, calculated by the Ministry of Finance as it settles the accounts for the last fiscal year ended in March, may raise questions about the efficiency of implementing heavy fiscal stimulus, some analysts say.

"It's not the size of stimulus that matters, but the question is how it should be implemented more efficiently," said Takuya Hoshino, senior economist at Dai-ichi Life Research Institute.

"The public-sector staff, as well as those in the private sector, tend to be overwhelmed by the cumbersome process that involves subsidies and other administrative applications."

Japan makes it a rule that the budget for a given year should be used up by the end of the same fiscal year.

Top lawmakers are still expected to call for large fiscal stimulus as they face the July 10 upper house elections, and as authorities focus on reviving an economy struggling to mount a strong recovery from the COVID-hit and global supply chain woes.

For fiscal 2021, Japan earmarked 106.6 trillion yen for an initial budget and it later rolled out a supplementary budget of 35.9 trillion yen including pandemic prevention and financial support to business and households.

The fiscal 2021 tax revenue was seen revised up to 67.0 trillion yen, up 3.1 trillion yen from earlier estimates and a record amount, with the three major tax revenues from the sales tax, corporate tax and income tax, all seen revised up.

Larger than expected tax revenue has allowed the government to reduce bond sales by 8 trillion yen out of planned issuance of 65.6 trillion yen for fiscal 2021, the draft showed.

($1 = 136.3000 yen)

Reuters