Japan’s Cabinet approved yesterday a ￥90.334 trillion (US$1.16 trillion) budget for the 2012 fiscal year, with a record 49 percent financed by bonds even as the country struggles to rein in its massive public debt.
Japanese Finance Minister Jun Azumi said Japan had reached its “limit” in relying on debt and said he was aware the global community was watching him in light of the serious debt woes in Europe.
Under the draft budget, to be submitted to parliament next year, the government would issue fresh bonds worth ￥44.2 trillion in the year from April, aggravating Japan’s public debt, which at nearly double its GDP is the worst among industrialized nations.
The proposed budget is technically 2.2 percent smaller than the original budget for the ongoing year to March.
However, local media said the budget in reality is the largest ever, worth more than ￥96 trillion, when key items accounted for in separate budgetary steps are included, such as money needed to rebuild the tsunami-hit northeast.
The finance minister said thorough tax and budget reforms were necessary to ensure the provision of public services and to regain the confidence of the international community as the nation continues to accumulate debt.
“I think that Japan’s budget-making processes and its reliance on public debt have reached their limits,” Azumi told a news conference.
The budget draft shows Japan’s dire fiscal situation, with estimated tax revenue of ￥42.346 trillion, which falls short of the planned bond issuance for a third straight year.
Debt-servicing costs are estimated to be ￥21.944 trillion, a quarter of the planned budget and 51.8 percent of estimated tax revenue.
The draft budget leaves out ￥3.775 trillion to be used for reconstruction of the earthquake and tsunami-hit region and ￥2.682 trillion “reconstruction bonds.”
In an unusual budgetary move, the government has also decided to issue ￥2.6 trillion worth of special bonds for the pension fund to cover payments the government is supposed to make to pensioners in the next fiscal year.
The special bonds will not be accounted for in the main budget and seemingly reduce the amount of bond issuance.
Azumi stressed the need to raise the 5 percent consumption tax to pay for expanding pension costs as Japan’s working-age population shrinks.
“I’d like [the Japanese public] to allow us to raise the consumption tax and overhaul the tax-revenue structure to make ourselves fully prepared to look after a continuously aging society and somehow reverse the falling birth rates,” he said.