Japan unveiled a record budget for the next fiscal year, as Japanese Prime Minister Shinzo Abe boosts spending on social security, defense and public works while trying to contain the growth of the world’s biggest debt burden.
Government ministers and the ruling coalition adopted the ￥95.88 trillion (US$921 billion) budget proposal for the fiscal year starting April 1 at a meeting on Saturday, Japanese Finance Minister Taro Aso told reporters. Japan will issue 41.25 trillion of new revenue bonds, Aso said, less than the ￥42.9 trillion earmarked in this year’s initial budget.
Abe’s government has pledged to halve the primary balance deficit by fiscal 2015 and achieve a surplus by fiscal 2020.
“The government needs to show that it’s moving in the right direction on fiscal discipline, but this budget lacks punch,” said Yoshimasa Maruyama, chief economist at Itochu Corp in Tokyo. “The government must cut spending to reach the planned target of a surplus in 2020.”
The government “will simultaneously achieve the revitalization of the economy and fiscal consolidation,” Abe said at the meeting, adding that the budget draft will be submitted to the Japanese parliament in the new year for debate.
Japan’s growth slowed for a second straight quarter in the July-to-September quarter as the initial impulse of Abe’s reflationary policies, dubbed Abenomics, started to fade.
While an increase in the sales tax in April will boost revenue, enabling the government to check bond issuance, it is forecast to push the economy into contraction, adding headwinds to Abe’s efforts to drive sustained recovery in the world’s third-biggest economy.
Revenue from bond sales will pay for 43 percent of next year’s budget, down from 46.3 percent this year, according to draft budget documents obtained from a government official.
Debt-servicing costs — including interest payments for outstanding bond issuance — will rise to ￥23.3 trillion from ￥22.2 trillion this year, the documents show.
Japan’s primary balance deficit will improve by ￥5.2 trillion next year, with tax revenue estimated to rise to ￥50 trillion, the finance minister said.
This compares with ￥43 trillion estimated for this year’s initial budget.
In addition to the sales-levy bump, higher company tax payments as corporate profits rise will also help lift revenue.
The sales tax will be increased to 8 percent from the current 5 percent from April 1, and the government plans to increase it again to 10 percent in 2015.
Social security spending will rise to ￥30.5 trillion next fiscal year, compared with ￥29.1 trillion this year, the draft budget documents show.
The increase comes as the nation’s aging population increases the costs of welfare and pensions.
Spending on public works is to rise by ￥680 billion to ￥5.96 trillion, and the defense budget is to rise by ￥130 billion to ￥4.88 trillion, according to the documents.
Real GDP will grow 1.4 percent in the year starting in April, according to the documents, which show nominal GDP growing 3.3 percent to ￥500.4 trillion.