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Box 5. Japan: Additional documents attached to the draft budget

●Specification of the revenue budget.

●Request of the planned expenditure of each ministry or agency.

●Statement of the total and net amount of the final fiscal reporting of the previous three years including the current fiscal year.

●Report on the state of national treasury funds in the previous three years including the current fiscal year.

●Report on the state of national bonds and borrowings, the estimated balance as well as the list of the year of redemption of public bonds and borrowing.

●Report on the balance of national property in the three previous years.

●Report on assets and liabilities, and profits and losses of major corporations in which the government has invested in the three previous years.

●Report on any measures incurring liabilities with National Treasury funds including the plan of the repayment.

●Report on continuing expenditure.

(Art. 18). When the Cabinet intends to make decisions on these estimates, the PFA requires Cabinet to ask in advance the heads of those organisations for their opinions (Art. 18). Furthermore, in cases where the Cabinet reduces the estimates proposed by those organisations, the PFA requires the Cabinet to clarify this in the budget (Art. 19).

4.2. Budget process in Parliament

4.2.1. The timetable for budget adoption and constraints on the budget debate in Parliament

According to the Constitution and the Diet Act, the parliamentary review process starts in the HR first. Major stipulations in the Diet Act concerning parliamentary budget review are as follows:

●A Committee on the Budget may be established as a Standing Committee in each House to consider the budget proposal (Art. 41).

●The Committee on the Budget is required to hold open hearings on the overall budget and to hear views from the interested parties (Art. 51).

●Motions of budget amendment are allowed (see section 4.2.3 below).

After the approval of the budget by the HR Budget Committee, the amendment of which is not always the case, it is put to a vote at a plenary session of the HR. Following its approval, the budget is then sent to the HC,

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whose Budget Committee deliberates in the same way as that of the HR. Likewise, the Budget Committee sends the budget to the plenary session of the HC for its approval. Provided approval is received before 1st April, the budget becomes effective as from that date, the beginning of the fiscal year. The Constitution and the Diet Act stipulate special reconciliation procedures in a situation where the two Houses have different opinions on the budget (see section 3.1.5 above).

4.2.2. Provisional budgets

The PFA (Art. 30) allows the Cabinet to prepare a provisional budget to cover a specified portion of the fiscal year in order to avoid the shutdown of the government, when the Cabinet expects that the regular budget cannot be approved by 1st April, for reasons such as an upcoming general election. The provisional budget becomes invalid once the regular budget is approved by the Diet. Expenditures or contracts based on the provisional budget are regarded as based on the regular annual budget. The law does not mention the scope of the provisional budget in detail, but in practice the expenditures in the provisional budget are strictly limited to those that are indispensable to be appropriated for the proper functioning of the government until the adoption of the regular budget by the Diet.

4.2.3. Powers of amendment

The Diet Act provides the Diet with the power to amend the draft budget. The Act requires a motion of budgetary amendment to be supported by at least 50 members in the HR or at least 20 in the HC (Art. 57bis), but the act does not place quantitative limits on amending the draft budget. However, the Constitution also stipulates that only the Cabinet makes budget proposals. Moreover, the Diet Act requires a House or a Budget Committee to afford the Cabinet an opportunity to give its opinion on a proposed amendment that increases the total amount in the budget (Art. 57ter).11 Although the Cabinet does not have the right to veto the budget amendment made by the Diet, the general understanding is that the Diet cannot amend the government’s budget proposal significantly. By virtue of the nature of parliamentary government, the executive directly depends on majority support in the Diet, and the composition of the Diet and the executive are intertwined, so the executive’s draft budget is conventionally accepted without any serious amendments or modifications.12 Like other parliamentary governments, attempts by the Diet to refuse the draft budget of the executive, if successful, would be considered tantamount to a vote of no confidence in the government.

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4.2.4. Approval of resources

The Constitution states that no new taxes are imposed or existing ones modified except by law or under such conditions as the law may prescribe (Art. 84). The PFA states that any surcharge as well as any monopolistic price or charge for a service which legitimately or practically belongs to the government, is determined in accordance with the law or by a Diet resolution (Art. 3).13 In addition, the Diet approves the draft annual revenue budget prepared by the Cabinet and set out according to the source of the revenues.

4.2.5. The nature, structure and duration of appropriations

The budget appropriations specify the maximum limit of government expenditures although this is not specified by law. Concerning the structure of appropriations, the PFA requires the budget including the special accounts, to be classified administratively (according to department and division) and into paragraphs (kwan) according to the purpose of the disbursement (Art. 23). Within ministries, the PFA requires expenditure paragraphs (kwan) to be subdivided into articles (kou). Articles (kou) are the unit of appropriation by the Diet and the budget documents include detailed figures which break down articles (kou). The budget is adopted mainly on an economic classification of expenditure, supplemented by a mixed programme and functional classification at a more detailed level. In line with this classification, line ministries are required to implement expenditures.

4.2.6. Carryover of appropriations and borrowing of future appropriations

The period of the appropriation is usually one year except for continuing expenditure. For projects such as construction and manufacturing which require a few years for completion, the government may continue to disburse over several fiscal years, subject to the Diet resolution in advance (Art. 14bis, PFA). The continuing expenditure does not exceed five consecutive years unless the Diet authorises it. There are no permanent appropriations.

Expenditure that is not likely to be spent within the fiscal year is allowed to be carried over to the following fiscal year under exceptional circumstances. The PFA permits carryover to the following fiscal year with the approval of the Ministry of Finance if this is caused by the nature of expenditure or any reasons after the approval of the budget, subject to the Diet resolution in advance (Art. 14). For the purpose of obtaining approval of the Ministry of Finance, the PFA (Art. 43) requires line ministries to prepare a statement of carryover, in which reasons for and the amount of expenditure to be carried over is specified by item. If approval is obtained, the expenditure may be carried over and used in the following years within the approved amount. Line

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ministries are also required to report the use of the carried over expenditure to the Ministry of Finance and the Board of Audit.

4.2.7. Public debt approval

The Constitution requires that all obligations entered into by the government be authorised by the Diet (Art. 85). Obligations include both debt and potential liabilities such as guarantees. The PFA stipulates that public bonds or borrowings are only permissible for limited purposes such as the finance of public works expenses not exceeding the amount approved by the Diet resolution with repayment plans submitted to the Diet (Art. 4). All matters with some exceptions concerning the issue of public bonds are prohibited to be undertaken by the Bank of Japan (Art. 5). The limit of the amount of public bonds or borrowings must be included in the general provisions of the annual budget and approved by the Diet (Art. 22). Furthermore, in cases where a surplus is generated in current transactions in each fiscal year, an amount equivalent to more than half of the surplus, in addition to what is otherwise required by other laws, is used for the redemption of public bonds and repayment of borrowing, within two years from the fiscal year in which the surplus was generated (Art. 6).

4.2.8. Promulgation, veto and publication of the adopted budget

There is no legal requirement for promulgation because the budget is not perceived as law which requires promulgation to take effect. The Constitution and the PFA require the government to make the adopted budget available to the public. The Constitution stipulates that the Cabinet should report regularly to the Diet on the fiscal information (Art. 91). The PFA provides that the content of the national budget, and supporting information, should be made available to the public as soon as it passes the Diet (Art. 46).

4.2.9. Supplementary budgets (rectifying laws)

The PFA provides the legal basis of supplementary budgets. The Cabinet is permitted to prepare and submit a draft supplementary budget to the Diet to amend the initial budget (Art. 29). There is no legal constraint on the number of supplementary budgets. The Cabinet can compile a supplementary budget and submit it to the Diet in the following cases: 1) to supplement a shortage of funds necessary to meet statutory contractual government obligations, or to supplement the budget so as to meet additional expenditure or contract requirements needed after the budget is made; and 2) to modify the budget for other reasons arising after the budget is made.

Supplementary budgets are adopted for a variety of reasons such as the necessity of stimulating the economy or recovering from a natural disaster.