Japan's Cabinet approved the budget for the next fiscal year, marking the first increase in two years, officials said yesterday, as the country tackles rising social security costs.
The proposed budget will boost spending on missile defense prompted by threats from North Korea, while cutting allocation on foreign aid and public works to restore fiscal health.
The Cabinet approved the ?82.91 trillion (US$700 billion) budget proposal for the next fiscal year beginning next April at a Cabinet meeting, according to deputy Cabinet secretary Hiroshi Suzuki.
The budget is 4 percent larger than the ?79.69 trillion initially earmarked for the current fiscal year ending next March.
The social security costs will increase 2.8 percent from the current fiscal year.
The government is struggling to pay for rising retirement and health care costs for an increasingly elderly population, while trying to pick up additional child care costs to encourage more couples to have children.
Spending on a missile defense system will increase 30.5 percent to ?182.6 billion. Japan and the US have been stepping up efforts to build a joint missile defense system following North Korea's nuclear test in October.
But the draft budget also contains a range of belt-tightening steps, the most prominent of which is cutting the size of new bond sales by the largest amount ever.
Under the approved budget plan, the government will slash new government bond issues to ?25.43 trillion, down 15.2 percent from the current fiscal year.
Japan -- which has the biggest government debt in the industrialized world -- issues new securities to procure funds to fill the gap between spending and revenues.
The proposed reduction is the largest in history and in line with Prime Minister Shinzo Abe's well-advertised goal of cutting new bond issue.
The decision was helped by an unexpected rise in tax revenues, projected to surge 16 percent, the biggest rise ever seen.
The government will trim the overall defense budget to ?4.8 trillion, down 0.3 percent from the previous year.
Japan's official development assistance will decrease 4 percent and spending on public works will drop 3.5 percent, under the plan.
The budget will be presented to the Diet in January.
"I think this budget carries a strong message that Japan is determined to achieve the goal of restoring fiscal health," Abe told said after the Cabinet meeting.
Japan's primary budget deficit, a key barometer of how bad Japan's fiscal state is, is expected to fall to ?4.4 trillion next fiscal year from around ?11.2 trillion in the current year forecast.
Japan aims to bring its primary balance into the black in fiscal 2011 or even earlier.
Finance Minister Koji Omi said that Japan may be able to achieve the goal earlier.
But Omi, speaking on a political show on TV Asahi yesterday, also said that it may not be easy as Japan is saddled with tasks to cope with its aging population.
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