The Japanese Cabinet yesterday approved a record budget for next fiscal year that tops US$1 trillion and adds to the developed world’s heaviest debt burden as Japanese Prime Minister Yoshihide Suga struggles to fight the COVID-19 pandemic and bolster an economic recovery.
Japan’s fiscal 2021 budget calls for ￥106.6 trillion (US$1.03 trillion) in overall spending during the 12 months starting in April, a 3.8 percent increase from last year’s initial budget, the Japanese Ministry of Finance confirmed.
Actual spending could rise much higher, given the likelihood of extra budgets, three of which were drafted this year amid the pandemic, adding ￥73 trillion to total spending.
Photo: AP
“We’ve had to balance preventing further infections, economic recovery and fiscal consolidation,” Japanese Minister of Finance Taro Aso said. “That balancing act was the most difficult part of compiling the budget.”
The pandemic has forced Japan to add to its mountain of public debt, with new debt issuance hitting a record this year.
Even before last week’s third extra budget, the IMF saw public debt hit 266 percent of GDP this year, with a budget deficit of 14.2 percent of GDP.
The Suga administration this month announced more than US$700 billion in stimulus, partly funded by next year’s budget. The package aims to contain the virus while helping the economy transition into a post-pandemic world.
Japan’s daily virus cases have twice risen above 3,000 in the past few days.
Suga has already been forced to declare a temporary suspension to a travel subsidy program he had promoted, robbing him of an efficient way of boosting an economy that some economists see under threat of falling back into a recession.
On the monetary policy side, the Bank of Japan maintained its ultra-easy stance on Friday, also extending its coronavirus response program by six months.
The bank also surprised the market by promising a policy review without a total overhaul, leaving economists and investors with three months to speculate about possible changes.
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A breakdown of next year’s budget expenditures shows ￥66.9 trillion in general spending, including about ￥35.8 trillion for social security, ￥5 trillion for a coronavirus response reserve fund, debt servicing of ￥23.8 trillion, and ￥16 trillion in transfers to regional and local governments.
On the income side, bond issuance is planned to rise to its highest since the global financial crisis. Income derived from debt is to rise to 40.9 percent of total revenue, compared with 31.7 percent this year.
The Finance Ministry plans to offer a total of ￥236 trillion worth of government bonds next fiscal year, the majority of which would be refinancing bonds.
A breakdown of fiscal 2021’s projected income shows ￥57.4 trillion in tax revenue, ￥43.6 trillion in revenue from new bond issuance and ￥5.6 trillion from other sources.
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