Tue, Jan 13, 2015 - Page 15 News List

Japan budget aims to restart economy

RISING REVENUE:The Ministry of Finance projects that tax revenue for the next fiscal year will rise to ¥54.53 trillion to cover 57 percent of the budget, up from 52 percent

Bloomberg

Japan is planning a record budget for next fiscal year to support an economy that fell into recession after Japanese Prime Minister Shinzo Abe’s government increased the sales tax.

Government ministers and the ruling coalition parties approved the ¥96.34 trillion (US$813.41 billion) budget proposal for the 12 months starting April 1 at a meeting in Tokyo yesterday, Japanese Minister of Finance Taro Aso told reporters.

Japan, fighting to rein in the world’s heaviest debt burden, will see tax revenue rise to the highest level in 24 years, while new bond issuance declines to the lowest since 2008. Abe has already boosted public works spending and support for small businesses through a supplementary budget for the current year.

“The budget will continue to grow each year as it gets increasingly difficult to curb social welfare spending due to Japan’s aging population,” Barclays PLC chief Japan economist Kyohei Morita said. “Given the risk that the economy will be hurt by a sudden decline in public works spending in the latter half of 2015, the government might have to draft another extra budget.”

Tax revenue for next fiscal year is projected to rise to ¥54.53 trillion and cover 57 percent of the budget, up from 52 percent. New bond issuance will decline to ¥36.86 trillion, Aso said.

While the sales tax has increased, the government has plans to reduce corporate taxes by 3.29 percentage points over two years.

GDP contracted for two straight quarters after the sales tax was increased 3 percentage points to 8 percent in April. In response, the government deferred another planned bump in the levy and last month assembled a ¥3.5 trillion stimulus package and the supplementary budget.

Real GDP should rebound, growing 1.5 percent next fiscal year, according to estimates released by the Japanese Cabinet Office yesterday. That follows a projected 0.5 percent contraction in the 12 months through March.

Abe’s Cabinet is scheduled to meet tomorrow to formally adopt the budget. The government has yet to release a full breakdown of all planned expenditure.

“The budget deals appropriately with issues Japan faces, including the revitalization of regional economies and the improvement of social welfare,” Aso said. “Coupled with tax revisions for the next year, the budget will revive the economy while consolidating government finances.”

The government will meet its target for halving the ratio of the primary balance deficit to GDP next fiscal year, Aso said. This gauge is calculated by subtracting expenditures excluding interest payments from revenue without bond sales, and is a key measure for the Abe administration as it attempts to control debt.

In a fiscal reform plan released in 2013, the government said it also aimed to achieve a surplus in the primary balance in 2020.

Japan’s debt-to-GDP ratio is projected by the IMF to swell to more than 245 percent next year.

Moody’s Investors Service cut Japan’s credit rating one level to “A1” last month, citing uncertainty over whether Japan could achieve its deficit reduction goals.

“It’s difficult for Abe to cut spending dramatically ahead of local elections,” Takeshi Minami, an economist at Norinchukin Research Institute, said before yesterday’s announcement. “The government seems to be conservative in the main budget. It just drafts extra budgets whenever it’s necessary to boost the economy.”

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