July 25, 2014 10:41 am JST

Abe cabinet OKs guideline for completion of FY2015 budget

TOKYO (Kyodo) -- Prime Minister Shinzo Abe's Cabinet on Friday approved the guideline for the compilation of the fiscal 2015 budget, vowing to bolster Japan's economy and restore its fiscal health -- the worst among major industrialized countries.

     An estimate released earlier in the day, however, showed Japan is unlikely to meet its international commitment to achieving a government budget surplus by fiscal 2020, even if it goes ahead with the 2-percentage-point consumption tax hike to 10 percent next year.

     Ministries and agencies will make budget requests by the end of August based on the guideline, toward compilation of the fiscal 2015 budget later this year.

     The guideline states the government will set aside up to 4 trillion yen to promote its new growth strategy aimed at boosting the corporate sector and local economies, while eying a 10 percent cut in discretionary policy spending, such as for public works projects.

     Social security outlay requests were allowed to increase by 830 billion yen in line with the graying population, but the government promised to strictly review costs weighing on public finances.

     Mandatory spending requests including personnel costs in the year starting April 2015 remained unchanged at 12.4 trillion yen.

     The budget request guideline did not set a cap on total spending as a final decision has yet to be made on whether to raise the consumption tax rate from the current 8 percent to 10 percent as scheduled from October 2015.

     Legislation enacted in 2012 stipulates the government will increase the tax rate in two stages in an attempt to cover swelling social security costs, provided the economy is healthy. The first round of the tax hike from 5 percent was implemented on April 1.

     But Japan's primary balance -- annual tax revenues and nontax revenues minus outlays other than debt-servicing costs -- is projected to post a deficit of 11 trillion yen in fiscal 2020, even if the second round of the tax increase is carried out, according to the estimate released by the Cabinet Office.

     The forecast deficit, though down from a January estimate of 11.9 trillion yen, may prompt other major countries to urge the world's third-biggest economy to map out a more drastic fiscal rehabilitation plan.

     The latest estimate, meanwhile, showed Japan can fulfill another international pledge -- halving the ratio of the primary balance deficit to gross domestic product by fiscal 2015 from the fiscal 2010 level.

     An improvement in the balance is viewed as the critical first step toward fiscal consolidation. Japan's public debt is more than 200 percent of GDP, and central government debt has topped 1,000 trillion yen.