Japan to run out of cash if Parliament standoff continues
6 Jul, 2012 17:09
Japan's Finance Minister says the government could run out of cash in October if it doesn’t pass a debt-issuance bill.
The deficit financing bill allows Japan to sell 38.3 trillion yen in government bonds to fund the budget. The remainder is funded by tax revenue, non-tax revenue and income from bonds issued for public works projects.Japan may be forced to halt all state spending including salaries, pensions and unemployment benefits, because of a standoff in parliament that has blocked a bill to finance the deficit."Without this bill, the budget will collapse," Finance Minister Jun Azumi said on Friday, pleading for cooperation from the two largest opposition parties.Last year, opposition parties blocked a bond bill linked to the fiscal 2011 budget until late August, forcing the government to delay various spending plans. The opposition finally let it through parliament in exchange for the resignation of then-Prime Minister Naoto Kan."It doesn't matter which party is in power. I really hope that we can get a multi-partisan agreement on the deficit bill," Azumi added. Opposition parties have been threatening to delay Japan's deficit financing bill in the past but have eventually yielded. This time, however, the opposition may be more emboldened because of the dispute over the sales tax hike.If the bill is not passed, government spending would grind to a halt, the world's third-largest economy would be endangered and its credit rating is likely to be downgraded again.The limbo in Japan however comes just after Prime Minister Yoshihiko Noda won over the opposition to pass an increase in sales tax in the lower house of parliament. However, a section of his party quit over the vote, and is poised to form a new party.Government expenditure is forecast to reach 43.9 trillion yen by the end of September, Azumi said.Assuming that the deficit financing bill does not pass, the government would have only 46.1 trillion yen on hand, Azumi said. This means the government is sure to run out of money by the end of October, he said.The first in line to take a hit if Japan starts running out of money would be regional governments, which rely on tax grants from the national government for much of their spending.The government would try to make pension and unemployment payments a priority, but once the money runs out, there is not much the government can help, finance ministry officials have said.