Public Finance Management in Japan: Selective findings · Public Finance Management in Japan: Selective findings Prof NJ Schoeman 6 September 2016. JP[YR2012] SA [YR2012] Population,

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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


• The tax structure of local government in Japan

• Own revenue potential and borrowing powers

3. IMPROVING THE EFFICIENCY OF FISCAL MONITORING AND

ACCOUNTABILITY


• Fiscal targets in Japan

• Fiscal soundness and corrective procedures

4. GOVERNMENT INDUSTRIAL SUPPORT


• 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


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)


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


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)


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


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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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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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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Public Finance Management in Japan: Selective findings · Public Finance Management in Japan: Selective findings Prof NJ Schoeman 6 September 2016. JP[YR2012] SA [YR2012] Population,