Japan’s center-left government on Friday approved a record ￥92.41 trillion (US$1.12 trillion) budget for the next fiscal year that aims to boost the flagging economy, but adds to a mountain of public debt.
Japanese Prime Minister Naoto Kan’s Cabinet backed the draft budget for the next fiscal year, which starts on April 1.
To finance the massive outlays, Japan aims to issue fresh bonds worth ￥44.3 trillion — meaning that for the second year in a row new debt will be bigger than tax revenue, projected to raise just short of ￥41 trillion.
“I think it is not a normal picture,” said Banri Kaieda, minister in charge of economic and fiscal policy, commenting on the state of public finances. “We must correct it as soon as possible.”
Japan’s public debt is already estimated at about 200 percent of GDP, the highest level among industrialized nations.
The new budget is slightly larger than the initial budget for this fiscal year, which stood at ￥92.30 trillion.
It will finance some of the spending pledges made by Kan’s Democratic Party of Japan (DPJ), such as cash for families with young children.
Kan said the budget was designed to “dispel the sense of stagnation” surrounding the country and revitalize the economy, in comments reported by the Jiji Press news agency.
Japanese Finance Minister Yoshihiko Noda defended the draft, which includes jobs and growth programs to sustain the ailing Asian economic giant, which expects growth to slow to 1.5 percent next year from 3.1 percent this year.
The Japanese economy — which lost the global No. 2 spot to China this year — has been battered by chronic deflation, a high yen that hurts exports, weak domestic demand and feeble consumer confidence.
In the longer run, it faces the demographic timebomb of a graying and shrinking population, which will leave fewer workers supporting more retirees and a declining domestic consumer market.
Noda claimed the government had met its promise of fiscal discipline, including capping new bond issuance at this year’s ￥44.3 trillion.
However, the draft runs contrary to earlier pledges by Kan, who came to office in June as the DPJ’s second premier, promising to slash spending and work toward cutting the massive debt, analysts said.
As well as the new bond issues, the governing DPJ party will have to rely on more than ￥7 trillion of non-tax income, such as past reserves, for the new budget, further damaging Japan’s fiscal discipline, they said.
Japan’s tarnished fiscal image had not improved, said Takahira Ogawa, director of sovereign ratings at Standard & Poor’s Ratings Services, who criticized the ￥44.3 trillion bond cap promise as “meaningless.”
Kan could face difficulty passing the budget, with one of the legislature’s chambers controlled by opposition parties trying to knock him out of power, Japanese media said.