October 31, 2011 / 10:47 AM / in 6 years

Japan's spending plans for rebuilding subject to review

TOKYO (Reuters) - Japan’s plan to spend 19 trillion yen ($250 billion) over the next five years to rebuild from the earthquake in March is not a final figure and is subject to review, although the government will seek to avoid any big increase, the reconstruction minister said on Monday.

“We first needed to make rough calculations on spending plans even though our assessment of damages was not complete. We’ll be able to more accurately grasp them as reconstruction projects start,” Tatsuo Hirano told Reuters in an interview.

The central government, which plans to issue bonds to finance reconstruction projects and raise taxes to repay them, is urging local governments in the quake-hit northeast to finish their reconstruction plans quickly to implement planned public spending in coming months.

“We are aware that reconstruction requires substantial spending,” Hirano said.

“But we don’t intend to grant whatever requests local governments come up with. They have to keep in mind that we’ll likely ask for higher tax payments (to finance rebuilding), so they need to make their plans convincing for taxpayers,” he said.

Japan faces a tough balancing act as it tries to pay for the damages from the March 11 earthquake and tsunami without straining its public finances, as its debts are already twice the size of the economy.

Prime Minister Yoshihiko Noda’s government last week approved plans to raise 9.2 trillion yen through tax hikes over a 10-year period to finance the country’s biggest reconstruction effort since World War Two.

Seven months after the disaster that left nearly 20,000 dead or missing and triggered the world’s worst nuclear crisis since the Chernobyl disaster 25 years ago, projects to rebuild coastal communities in the northeast have yet to shift into high gear.

Hirano acknowledged the task of rebuilding has been overwhelming for local governments that are often understaffed as the current reconstruction requires not just restoration but relocation of tsunami-ravaged residential and business areas.

But he said the government wants to start spending the 12.1 trillion yen supplementary reconstruction budget it recently approved as soon as possible after it clears parliament, and needs local governments to act more quickly.

Accelerating the rebuilding projects is also important for the economy because reconstruction-related demand is expected to provide support as the global economy falters and the yen stays strong.

“We have to avoid a situation where reconstruction projects have to wait until next spring to start. But not many local governments have completed their plans. We are urging them to hurry.”

Hirano emphasized the need to stick to fiscal discipline, countering criticism that the economy will be hurt if the government raises many types of taxes for both reconstruction and social security reform.

He said the government will stick to a policy of not passing on reconstruction costs to the next generation by setting a period for redeeming reconstruction bonds through tax hikes.

“It is the Japanese people who need to support the country’s finances but we have been delaying repayment from one generation to the next. The government in principle should pursue a balanced budget,” he said.

($1 = 75.760 Japanese Yen)

Additional reporting by Izumi Nakagawa; Editing by Chris Gallagher

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