Japan’s Cabinet approved a record budget for the next fiscal year, with social security costs pushing up the bill for a government already struggling to rein in the developed world’s biggest public debt load.
Spending by the Japanese government is to increase by about 1.2 percent to ￥102.7 trillion (US$939 billion) in the year starting April, the Japanese Ministry of Finance said yesterday.
Outlays on social security would account for about 57 percent of spending outside of debt servicing and transfers to regional governments, the ministry said.
Photo: AFP
While Japanese Prime Minister Shinzo Abe’s administration is emphasizing that another planned reduction in bond issuance shows the government’s commitment to putting Japan’s finances in order, economists do not see any major change in the “status quo.”
Speaking after the release of the budget, Japanese Minister of Finance Taro Aso said that Japan is still committed to balancing its books by fiscal 2025 and flagged the eighth straight reduction in planned new bond issuance under Abe.
The government would continue with reforms aimed at controlling spending, Aso said, but hinted that not everything was under his control.
“The real world is about the economy. Unless the economy grows, we can’t hit various goals,” he said.
In the face of public debt that exceeds 200 percent of GDP, Abe’s administration has been narrowing Japan’s budget deficit and trimming its issuance of new bonds to fund spending.
However, rising costs for healthcare and pensions in a rapidly aging society are making it hard to make progress in chipping away at the debt pile.
In the short term, a stimulus package unveiled this month to boost flagging growth also complicates the effort. Longer-term, a hike in the sales tax in October is already bringing in more money, although Abe also has earmarked a portion of the extra revenue to make preschool education free, adding to spending.
“There hasn’t been a lot of change to overall spending, but the stimulus package adds to the bloat,” said Harumi Taguchi, Tokyo-based principal economist at IHS Markit.
Some economists also cast doubt on whether bond issuance was the right yardstick of progress for righting the nation’s finances.
“The focus seems to be on new bond issuance. It shouldn’t be that way,” SMBC Nikko Securities Inc senior economist Koya Miyamae said. “The government has to tackle the spending and not enough effort has been made on that front.”
Japan’s fiscal deficit is projected to fall to 2.9 percent against GDP next year, compared with 3.4 percent this year, according to a ministry document issued with the budget.
However, the figure is reliant on economic growth and tax receipts matching up with forecasts that some economists say are optimistic.
“Japan’s budget deficit is likely to edge up against GDP in the next fiscal year, since the economy isn’t likely to grow as fast as the government forecasts, corporate tax receipts will probably fall short of projections and the Abe administration may end up spending more in another extra budget,” Bloomberg economists said.
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