Japan to Tie Green, Digital Investments to Government Cost Cuts

(Bloomberg) -- Japan's debt-strapped government unveiled a budgeting mechanism to try to minimize the financial burden of new green and other growth initiatives by tying funding to cost-cutting results at its ministries.

Under the plan, ministries get 3 yen to spend on projects in targeted areas including the environment and digitalization for every yen they're able to cut from other spending, according to documents released by the Cabinet Office Wednesday.

The plan calls for cuts of 10% to discretionary spending, which totaled 14.9 trillion yen ($135 billion) last year across the country's ministries. Cuts to non-discretionary spending are also part of the plan.

Prime Minister Yoshihide Suga is pushing for investment into green and digital technologies even as the government struggles under the developed world's heaviest debt burden. The new budgeting mechanism is an attempt to square that circle by providing incentives for Japan's bureaucrats to cut costs while also funding the country's new growth projects.

Like many countries, Japan has adopted new targets for reducing greenhouse gases, aiming for net-zero emissions by 2050. Analysts are skeptical the goal will be met, but the new budgeting incentives could at least help. The government has also allocated a 2 trillion yen fund to green projects.

Investing in more software and computers to do the government's work has also become a national mission after the pandemic exposed how slow the bureaucracy sometimes moves. Website problems slowed the delivery of stimulus money to residents last year and Japan's vaccine rollout has been hindered by backward computer systems, especially at the local government level.

Using cost-cuts to pay for needed investments may not be easy because the Japanese government is already so lean. Public sector employment is one measure of that. Fewer than 6% of Japanese workers are employed by government, far below the 18% average of peer countries in the Organization for Economic Cooperation and Development.