public finance management in japan: selective findings · public finance management in japan:...
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Public Finance Management in Japan:
Selective findings
Prof NJ Schoeman
6 September 2016
JP[YR2012] SA [YR2012]Population, total 127,561,489 52,341,695Population growth (annual %) -0.200 1.517Surface area (sq. km) 377,960.000 1,219,090.000Population density (people per sq. km of land area) 349.905 43.147GNI per capita, PPP (current international $) 36,730.000 12,260.000Urban population (%) 92 64Life expectancy at birth, total (years) 83.096 56.098Fertility rate, total (births per woman) 1.410 2.412GDP (current US$) 5,954,476,603,962 397,391,258,596GDP growth (annual %) 1.754 2.220Agriculture, value added (% of GDP) 1.216 2.390Industry, value added (% of GDP) 25.603 29.727Services, etc., value added (% of GDP) 73.181 67.883Foreign direct investment, net inflows (BoP, current US$) 849,280,125 4,626,029,122
PUBLIC FINANCE
MANAGEMENT
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PRESENTATION OUTLAY: SELECTIVE ISSUES
1. EFFICIENCY AND EFFECTIVENESS OF DECENTRALIZED GOVERNMENT
• SA deficiencies/challenges
• Policy reform in Japan to improve on the quality and effectiveness of service
delivery
2. STRENGTHENING OF THE REVENUE BASE OF SUB-LEVELS OF GOVERNMENT
• SA deficiencies/challenges
• The tax structure of local government in Japan
• Own revenue potential and borrowing powers
3. IMPROVING THE EFFICIENCY OF FISCAL MONITORING AND
ACCOUNTABILITY
• SA deficiencies/challenges
• Fiscal targets in Japan
• Fiscal soundness and corrective procedures
4. GOVERNMENT INDUSTRIAL SUPPORT
• SA deficiencies/challenges
• The legal framework
• Approach to public private partnerships
• Funding incentives
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1. THE EFFICIENCY OF SERVICE DELIVERY
SA Challenges Approach to similar problems in Japan
Poor service
delivery
Volatile levels of
economic growth
High levels of
urbanization
Municipal revenues
from own sources
growing sluggishly
with increased
expenditures
• Privatization of public-related services
• Inter-municipal horizontal cooperation
• Partial Local Public Unit
• Municipal mergers
• Ranking of municipalities in terms of their performance
• Stimulate consumption while considering different economic
conditions among regions
• Revitalize local economies facing structural challenges through
effective initiatives such as job creation
• Infrastructure spending
• Encouragement of voluntary participation of the public,
businesses, and local governments in eliminating inefficient
expenditures for public services and improving the quality of
public services
• Updating quality data for improved levels of communication
and information
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2. IMPROVING THE FISCAL SUSTAINABILITY OF LOCAL GOVERNMENT
SA Challenges Approach to similar problems in Japan
Low tax compliance
Challenge in
collecting own
revenue
Vulnerable cash
position of
municipalities
• Upgrade ethical values through education, etc.
• Improve the efficiency of revenue collection
• More power to local authorities to collect their own revenue in
the form of levies and taxes.
• Link the total amount of local allocation tax to national tax
revenue, which comprises a set percentage of certain revenue
sources.
• Allow local bonds to be issued to cover expenses for
infrastructure expenditures
• Allow local governments to take out long-term, low interest
loans
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IMPROVING THE FISCAL SUSTAINABILITY OF LOCAL GOVERNMENT (Continued)
SA Challenges Approach to similar problems in Japan
Municipalities’
taxes and tariffs
are inappropriately
structured
Under-spending on
repairs and
maintenance
• More own initiative and guidance regarding the allocation of
tax revenue
• More independent judgment of each local government
• Allow local bonds to be issued to cover expenses for
infrastructure expenditures
• Allow local governments to take out long-term, low interest
loans
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3. IMPROVING THE EFFICIENCY OF FISCAL MONITORING AND ACCOUNTABILITY
SA Challenges Approach to similar problems in Japan
Lack of proper
monitoring of fiscal
flows.
At a municipal level a
large number of
municipalities do not
produce annual
budget documents
according to
prescribed rules
• In Japan financial soundness at local government level is judged based
on a number of ratios deployed as benchmark criteria which is then
monitored - Budget screening
The Act on Assurance of Sound Financial Status of Local Governments
identifies three categories that describe the levels of soundness
Accrual base bookkeeping system improves accountability.
Public announcements concerning the ratios of local government
finances improves accountability
Formulation of a financial soundness plan (approval required by the
assembly) and obligation to request an internal audit.
Proper link between evaluation and the budgeting process
Taxpayers are closely monitored through effective tax examination
and information gathering programs.
Improved levels of control and efficiency of tax collection through the
implementation of “E-tax” which provides a citizen-centric, online
income and other tax returns filing and payment services for
individuals and corporations.
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3. IMPROVING THE EFFICIENCY OF FISCAL MONITORING AND ACCOUNTABILITY
(continued)
SA Challenges Approach to similar problems in Japan
Only 43% of
municipal budgets
appropriately ‘funded’
which makes it
difficult for local
governments to be
accountable to
citizens for proper
services
Lack of appropriate
human and
managerial
resources and a
high turnover of
officials
• Saving on budgets by means of municipal mergers set as a target
• Special bonds for mergers
• The Japanese government has pooled huge funds through inter alia
postal savings accounts, postal life insurance and a postal pension
system from which loans are made
• Accountability is improved through both internal and external
monitoring and the comparison of the performances of municipalities
• By ensuring that quality data is available the monitoring of local and
central finances is more effective
• Effective selection of well qualified public officials
• Continuous training for public officials (on the job as well as theoretical)
• The effectiveness of officials is improved by means of exposed
visibility and the measurement of their success rate regarding the
achievement of goals in the most efficient and effective way.
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4. GOVERNMENT SUPPORT TO GROW THE INDUSTRIAL SECTOR
SA Challenges Approach to similar problems in Japan
Sectoral structure of the economy of South
Africa has not adjusted to modern trends
with large numbers of laborers trapped
into the primary sector.
• Unique Japanese approach to
knowledge accumulation and innovation
facilitates the need and capability for
sectoral adjustment
• Strong selection of growth sectors with
substantial government support
• Harmonize the tax system with
government incentives
• Tax reforms that support industrial
growth
• Tariff but also non-tariff barriers to
support local industries
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SA Challenges Approach to similar problems in Japan
No clear measurement of
success of government
intervention and
cooperation with the
private sector
• Strong collaboration between the state and big
business
• The state's role in the economy is shared with the
private sector
• Administrative guidance became a salient feature of
the Japanese government-business relationship –
especially regarding trade liberalization
• The state encourages business expansion. For
example, the Special System for Corporate Field Tests
and the System to Eliminate Regulatory Gray Zones
programs
• The "Corporate Governance Code" specifies the
principles of corporate governance for application by
listed companies.
• Japan has had huge success with improving the
quality and availability of data which promotes
accountability and information flows between the
state and private sector
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SA Challenges Approach to similar problems in Japan
Huge amount of
administrative
red-tape
• Japan strives towards a “business friendly” environment
• Government's role in the economy, either before or after
trade liberalization, has never been highly constrained by
law
• PPP/PFI infrastructure that is administered by municipalities
does not require approval from the national government.
• Strong public relations efforts to cap administrative hurdles
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SA Problem Japan initiatives
Lack of sufficient
funding and little or
no guarantees for
succession
• Investment in and startup of venture businesses, and
infrastructure development with succession incentives
• If tax allocations and assistance payments/subsidies are
insufficient, municipal bonds can be issued guaranteed by
the national government
• Various types of PPP’s
• Loan facilities to enhance global business development by
means of (i) subordinated loans and (ii) financing for
leveraged buyout (LBO) as new means of providing funds
that supplement financing for the private sector.
• Enhancement of low-interest loans from the Japan Finance
Corporation and other financial institutions.
• Support with the start-up of venture businesses, etc. using
local resources which utilize individual funding.
• Government guarantees SME’s loans
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