Spending at record ¥96.34tn; new debt at ¥36.86tn; tax income seen at 24-yr high of ¥54.53tn due to recovery; Japan seen to halve

deficit; budget-balancing goal still distant; budget highlights balancing act for growth and fiscal reform

Reuters
Tokyo


Japanese Prime Minister Shinzo Abe’s cabinet approved yesterday a record $812bn budget for the fiscal year starting on April 1,

while cutting new borrowing for a third straight year in a bid to balance growth and fiscal reform.
The ¥96.34tn ($812.45bn) general-account budget draft, the third since Abe swept to power in late 2012, marks a rise from this

fiscal year’s initial ¥95.88tn, reflecting higher welfare spending and military outlays.
A projected rise in tax revenue to a 24-year high of ¥54.53tn on an expected economic recovery allows Tokyo to cut new bond

issuance to a six-year low of ¥36.86tn. That accounts for 38.3% of the budget, a six-year low.
With Japan’s public debt above twice its gross domestic product (GDP), the industrial world’s heaviest burden, Abe sought to

restore fiscal health while lifting growth in the world’s third largest economy.
“I believe the budget will contribute to achieving economic revival and fiscal consolidation at the same time,” Abe told

reporters.
Abe said Japan is on course to meet his promise of halving the primary budget deficit – excluding new bond sales and debt

servicing – in the next fiscal year from levels seen in 2010/11. But the improvement is largely a result of the tax revenue

windfall from rising corporate profits under the easy-money policies of “Abenomics.”
Fitch Ratings last month threatened to cut its A plus rating on Japan’s government debt if the budget did not offset revenue from

Abe’s delay of a planned sales-tax hike.
“This budget underlines slowness in fiscal consolidation and it highlights the risk of relying too much on growth to cover rising

spending,” said Yasuhide Yajima, chief economist at NLI Research Institute. “It’s impossible to achieve a primary budget balance

without credible measures for spending restraint.” Masaki Kuwahara, senior economist at Nomura Securities, said the budget is

neutral for his 2.2% GDP growth forecast for next fiscal year.  The budget projects the primary budget deficit will narrow by

¥4.6tn to ¥13.4tn. But Finance Ministry projections show that without further efforts, the government can’t keep its promise of

balancing the budget by 2020/21.
The largest budget item, social welfare spending, will rise ¥1tn to a record ¥31.53tn.
Defence spending also hit a record ¥4.98tn, up about ¥100bn from this fiscal year and rising for a third straight year,

reflecting Abe’s ambition to counter China’s rising military might.
Despite the narrower budget deficit, the growing stock of outstanding debt will push interest payments and redemptions up ¥200bn

to a record ¥23.45tn.