Action 30. Leave No Stone Unturned in Expenditure Reform – Overhaul Independent Administrative Corporations, Government Procurement, Special Budgets, and Stick the Knife into Administrative Systems

Although the key to expenditure reform is to reduce social security spending, efforts must obviously also be made to implement administrative reform in other fields. Here, we discuss expenditure reform for all the ministries and agencies in Kasumigaseki.

1. Conduct a Thorough Reform of Independent Administrative Corporations
Independent administrative corporations, which were established as part of the 2001 reform of central government ministries and agencies, now number 98 and receive approximately 3 trillion yen in tax money. Because they are granted a great deal of freedom, they are not subject to governance by the government. They are not making independent efforts to eliminate waste and operate more efficiently, and they are not subject to fiscal discipline. Independent administrative corporations should be divided into two categories:
1. Corporations that provide services that need not necessarily be provided by the central government should be privatized (abolished, or grants from the national treasury to help fund their operations prohibited).
2. Corporations that provide services that need to be provided by the national government should be made subject to more rigorous governance. Their employees should have to be public servants, and their budgets should be subject to the same stringent screening process that applies to government agencies.
If a policy such as the above is adopted, and independent administrative corporations are privatized, abolished, and merged with each other, and the remuneration of their chairmen and board members is significantly reduced, the national government should be able to save a great deal of money.
2. Reform Government Procurement
Public-sector procurement, which includes spending on public works, amounted to 6.9428 trillion yen, with 1.3729 trillion yen of this, around 20%, being negotiated contracts that aren’t subject to competition. Moreover, each ministry and agency procures supplies and systems independently. It is therefore necessary to build in a mechanism to encourage each ministry and agency to curtail its procurement independently.
1. Each ministry and agency should have to formulate and publish a procurement plan, and these plans should be subject to an external review each year.
2. The minister’s office should take the lead in ensuring that the previous year’s review is properly reflected in the budget for the following year.
3. Information systems, backyard services, etc. that can be shared by all ministries and agencies should be procured singly to deliver economies of scale. Government procurement should be conducted in an open fashion, and the principle of competition should be ensured by encouraging new entrants, including startup firms, to bid.
3. Get to Grips with Reforming the Special Accounts
Wastefulness in the special accounts has been pointed out for years. Successive governments have tried to reform them, and as of 2015 their number has been reduced to 15. However, the total budget for them has swelled to 195 trillion yen, which is double that of the general account.
Reform of the special accounts that only reduces their number is essentially meaningless. The government needs to group the special accounts into three types: (1) business, (2) insurance, (3) specific financial resource. Then it needs to abolish all the (1) business special accounts and introduce strict screening of the budgets of the (2) insurance special accounts and (3) specific financial resource accounts. By doing this, it can make the national government’s finances more transparent.
4. Further Administrative Reform as Part of Expenditure Reform
In Kasumigaseki, once they have been implemented, programs that are no longer necessary or relatively ineffective are not necessarily cancelled. Because of this, the following steps need to be taken.
1. An evaluation system: A control tower in the prime minister’s office must be established to evaluate the PDCA cycle. Individual ministries and agencies must not perform evaluations independently.
2. Evaluation methods: Specific numerical targets for evaluating policy must be adopted and progress with achieving them must be reviewed in the middle of each year. Programs that are not producing results must be cancelled immediately.
3. Evaluation results, data etc. must be made open to facilitate external review.