Japan Cabinet Approves Record Budget
Baku, January 30 (AZERTAC). Japanese Prime Minister Shinzo Abe's cabinet approved Tuesday a record ¥92.6 trillion ($1.02 trillion) draft budget for the coming fiscal year, as efforts to rein in the nation's deficit take a back seat to the new administration's goal of quickly boosting the economy.
In addition to a major expansion of public works spending, the year-on-year increase in the proposed budget reflects the difficulty of reining in an aging nation's social welfare expenditure and Mr. Abe's renewed emphasis on defense, which is set for its first funding increase in 11 years amid continuing tensions with China.
Japanese Prime Minister Shinzo Abe, center, holding a cabinet meeting Tuesday where a record budget was approved
The record total had stood at ¥92.4 trillion for the main budget of the year starting April 2011 compiled by the previous Democratic Party of Japan administration. The DPJ lost power in a general election landslide in December that brought the conservative Liberal Democratic Party back into power.
But the government says it isn't appropriate to compare the current budget plan with those of prior years, because they contain different items. For instance, the original budget for the year beginning April 2012 didn't include funding to cover a pension reserve shortfall. If that amount is added back, then that year's main budget would be larger than the budget proposed for the coming fiscal year.
In addition to a spending program heavy in public works in the planned budget, the government has also set aside ¥4.4 trillion in funding for reconstruction of the quake-hit northern Japan in a separate account. These spending plans come on top of a ¥10 trillion economic stimulus package announced just two weeks ago.
For the world's most indebted nation, "this is hardly an austerity budget," said Yasuo Yamamoto, senior economist at the Mizuho Research Institute.
"The government is trying to create the appearance of fiscal discipline, but this is quite a bloated budget," added Mitsumaru Kumagai, chief economist at the Daiwa Institute of Research.
A record as it may be, the size of the spending is still seen as a moderation of the LDP's rhetoric during the election campaign, in which the party pledged to spend lavishly on public works projects.
While Finance Minister Taro Aso acknowledged that the spending plan is enormous, he said it is necessary to "resuscitate an economy that had been stagnating for the last three years under the previous government."
Separately, the government also approved a tax reform plan Tuesday featuring temporary tax breaks worth ¥270 billion a year, mainly for businesses.
The budget is still months away from enactment although it is likely to be passed largely intact. The final draft is unlikely to be submitted to parliament until the end of February at the earliest. As the ruling coalition holds a majority in the lower house, passage of the budget is essentially guaranteed.
The coalition is expected to avoid taking a heavy-handed approach ahead of an upper house election in summer, meaning that after consultation and debate with opposition parties, the bill may not be passed until after the start of the coming fiscal year on April 1.
Of the ¥92.6 trillion in spending, ¥43.1 trillion will be financed with tax revenues and ¥42.9 trillion with issuance of new bonds, adding to Japan's massive public sector debt that already totals nearly ¥1 quadrillion.
The budget does show clear differences from those of the previous DPJ administration, with a clear shift away from social welfare toward defense and infrastructure programs.
It calls for a reduction of ¥67 billion in welfare benefits over the next three years, an increase of ¥712 billion, or 15.6%, in public works programs and a ¥35 billion, or 0.8%, increase in spending for the Self-Defense Forces.
"Adequate amounts have been provided to ensure the safety of public infrastructure and to address public concerns about national defense," Mr. Aso said.
The LDP's call for aggressive public works spending got a better reception after the collapse of an expressway tunnel in December that killed nine people. Simmering tensions with China have also increased support for spending programs to improve the security of Japanese territory.
In a policy address Monday, Mr. Abe vowed to erase fiscal deficits in the medium-to-long term, but stopped short of saying when, leaving the task to his economic advisory panel.
Sayuri Kawamura, a Japan Research Institute economist, is worried that not enough attention has been given to the risk of fiscal implosion.
"As debt piles up, the cost of servicing that debt also goes up, eating deeper into tax revenue, and leaving less and less for policy programs. The government hasn't explained how they are going to deal with this challenge," Ms. Kawamura said.
In the coming fiscal year, ¥22 trillion, or a quarter of the total budget, will be used to service the national debt.
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