New Budgeting Policy of Japanese Government

Tuesday, September 22, 2009 – Osaka, Japan

Nikkei, Japan’s leading newspaper specialized in economy and politics, reported on September 21 that the new Japanese government established a new budgeting policy of practically implementing multiple-year appropriation from 2010. The framework of the policy will be developed by a committed to be established within the National Strategy Bureau headed by Mr. Kan, and is planned to be submitted in the middle or end of October. There would be no legislative problem in “practical” implementation of the new budgeting system. There are three main budgeting revisions, all of which are designed to improve the effective use of budget.

First revision is practical implementation of multiple-year appropriation. The long custom has been forcing to use up the budget for the fiscal year because of one-fiscal year budget system. This system led to long-year custom of unnecessary road work performed only to use up the fiscal year budget so that the budget can be acquired the following fiscal year. What the government is trying to do is implementing a multiple-year appropriation concept and framework of the U.K., that enables the remaining fiscal budget to be carried over to the following year. In line with this, the government is also planning to establish a foundation and/or revising law(s).

Second revision is abolition of “ceiling” system that started in 1961 as budget request framework. Currently each ministry requests budget by each related expenses such as public work projects and social security according to budgetary request guideline. Instead, the National Strategy Bureau is to prioritize business. The Bureau will compose revenue framework from sources including the government’s economic forecast, and business whose budget exceed this framework could be carried over to the following year.

Third revision is improving budget inspection system. Currently Ministries of Finance and General Affairs and Board of Audit inspect the waste and validity of budget. The inspection will be changed to politics-driven, and achievement progress of the numbers based on the policy set at the beginning of the fiscal year will be monitored. And in the future, the government is to study to implement a system linking this inspection and monitoring with personnel evaluation of government officials. An example is comparing number of prospect users of airport and roads before construction and the actual number of users after the construction, and should a big gap between the two be found, it would be reflected to the personnel evaluation of government officials concerned.

To the author, in short, the three revisions are implementing systems proliferating in many private companies. In many companies, Corporate Planning or Business Plan Analysis department (equivalent to the National Strategy Bureau in the new government) prioritizes business and leads budgeting, although how the top-down and bottom-up are mixed depends on the company.

Mid-term and/or long-term strategy, road map and plan is developed first aligning with the company’s mission and vision, which is then broken down to annual business plan, and quarterly/monthly plan. Performance is monitored regularly and together with the latest forecast, adjustment is made flexibly. And usually MBO (Management by Objectives) is used, linking the goal of company/organization and individual, and reviewing what extent the team and individual target is achieved as well as processes (value & behaviour) of achievement.

The new budgeting system is a solving problem of root cause of such issue as the recent interdiction of additional appropriation for 2009 that do not contribute to business environment improvement. The interdiction has triggered big debate and confusion which is not a surprise and its feasibility is question. With the new revised budgeting system, this kind of issue should not occur.

The long-year systems and customs of public sector are unbelievable for people in the private sector. The new policy and system may have negative impact on some industries and companies such as construction, but in general, it should have positive impact from total optimization perspective. It is highly desired that the new policy is implemented without fail for effective use of budget and higher productivity of the government, meaning growth of the nation and better life of all citizens.