IV. JAPAN

3. Legal basis for the establishment and the powers of the actors in the budget system

3.1. The executive and the legislature

3.1.1. Overview

Japan is a unitary and parliamentary State with three layers of government (central government, regional government – mainly prefectures, and municipalities). Executive power is vested in the Cabinet under the Constitution. Only the Cabinet has the authority to prepare the draft budget and submit it to the Diet around early January. The Diet has two Houses: the House of Representatives (HR) and the House of Councillors (HC). The imposition of taxes and the appropriation of expenditures require the authorisation of the Diet. The deliberation in the Diet on the draft budget begins in the HR, and after approval at the plenary session of the HR, it is sent to the HC around early March, even though this is not a legal rule.

3.1.2. Roles and responsibilities of the Cabinet and individual ministers

The Constitution states that the Cabinet, being composed of the Prime Minister and other ministers defined by law, has executive power (Arts. 65 and 66). The Prime Minister, the head of the Cabinet, is designated from among the members of the Diet by a resolution of the Diet (Art. 67). The Constitution provides the Cabinet with various powers, including: i) to administer the law faithfully, ii) to administer the civil service, and iii) to prepare the budget and present it to the Diet. The Cabinet Office was newly established by law in January 2001, by consolidating several ministries including the former Prime Minister’s Office and the Economic Planning Agency. The Cabinet Office is in charge of overall policy planning and coordination to support the Cabinet’s strategic function.1 The Cabinet Law 1947 as amended specifies the operational procedures of the Cabinet and limits the number of Cabinet members to not more than 17.2 The Constitution requires Cabinet ministers to take collective responsibility for the exercise of executive power (Art. 66).

3.1.3. Establishment of ministries and executive branch agencies

General principles for establishing ministries, commissions, and agencies are stated in the National Organisation Act 1948 (NOA), as amended.3 The NOA provides only general rules, and the list of ministries, commissions and agencies are contained in an appendix. Each ministry must have its own establishment law, specifying its functions (Art. 4). Accordingly, the Establishment of the Ministry of Finance Act 2000 was adopted as a result of the central government organisation reforms. The Ministry of Finance, having a budget bureau and a tax bureau respectively, is responsible for fiscal

IV. JAPAN

management of the central government. The Ministry of Finance prepares the national budget, submits it to Cabinet for approval, and oversees the execution of the budget by line ministries.

The Council on Economic and Fiscal Policy (CEFP)4 created in 2001 under the Cabinet Office shares responsibility with the Ministry of Finance for fiscal policy and budgeting (the Cabinet Office Establishment Act 1999). Even though it is an advisory board to the Cabinet, it deliberates on some key issues including policies on economic and fiscal management and guidelines for budget formulation. One of the most striking events in the budget process is that the first draft on guidelines for formulation of the budget is prepared by the CEFP. The Finance Minister is one of the members of the CEFP and contributes to policy making for economic and fiscal management. By contrast, the Minister for Public Management, Home Affairs, Posts and Telecommunications is responsible for local government finance and administration.

The objectives and scope of the activities of each public corporation are specified in its establishment law. Most government funds in the form of capital subscriptions, loans, and transfers, are reported in the national budget. In particular, profit and loss statements, and balance sheets of the 62 largest public corporations are provided to the Diet. Public corporations, and some privatised companies in which the government retains an equity interest, have public policy obligations related to the provision of universal services and other non-commercial objectives.

3.1.4. Responsibilities of senior civil servants

There are no special legal provisions for senior civil servants for budget management. All civil servants are bound by a code of conduct, which is derived from the National Public Service Ethics Law 2000, as amended. According to the code of conduct, civil servants are required not to give unfair, discriminatory treatment to the public with respect to information gathered in the performance of their duties, recognising that they are servants of the whole nation and not of any special group.

3.1.5. Establishment and roles of parliamentary committees

The Constitution states that the Diet is the highest organ of State power and is the sole law-making organ of the State (Art. 41). The Diet Act requires that the budget must first be submitted to the HR, and the Committee on the Budget be established as a Standing Committee to consider the draft budget submitted by the Cabinet in the HR and the HC respectively (Art. 41). Upon consideration of the budget, when the HC makes a decision different to that of the HR, the Constitution (Art. 60) complemented by Chapter X of the Diet Act