Japan's Cabinet OKs record 95.88 trillion yen fiscal 2014 budget
TOKYO (Kyodo) -- Japan's Cabinet on Tuesday approved a record-high 95.88 trillion yen ($922.22 billion) general-account budget for fiscal 2014, as the government of Prime Minister Shinzo Abe simultaneously seeks to conquer decades of deflation and restore the nation's precarious fiscal health.
As expenditures for defense, public works projects and social security programs will increase, the country's policy spending will reach a record-high 72.61 trillion yen, up 2.24 trillion yen from the original budget in the previous year.
To promote fiscal rehabilitation, the government will curb the new issuance of bonds to 41.25 trillion yen, down 1.60 trillion yen from the amount set under the initial state budget for fiscal 2013 due in part to an expected increase in tax revenues.
The central government's tax revenues are estimated to reach 50 trillion yen, the highest in seven years, as the sales tax rate will be lifted to 8 percent next April from 5 percent now, and corporate tax payments are likely to grow on the back of economic recovery.
The deficit in the primary balance -- annual tax revenues and nontax revenues minus outlays other than debt-servicing costs -- is forecast to shrink by 5.2 trillion yen from the previous fiscal year to 18.0 trillion yen in fiscal 2014, the second-biggest improvement after 6.8 trillion yen in fiscal 2007.
But 43.0 percent of the budget will be financed by new bond issuance, underscoring Abe's administration has been eager to spend massive amounts of money to bolster the "Abenomics" policy mix that also entails preferential treatment for companies, some analysts said.
If the new state budget fails to prop up domestic demand, the 3-percentage-point tax hike would choke the nascent economic recovery and prevent overall tax revenue from rising as the government has predicted, hampering Abe's efforts to restore the nation's public finances, the worst among industrialized countries, they added.
"As we hope many firms will raise wages and the economy will enter a virtuous circle as soon as possible, we will be committed to providing a tailwind for the economy across the country," Abe said at a board meeting of his Liberal Democratic Party.
The government, which compiled a 92.61 trillion yen initial budget for fiscal 2013, plans to submit the draft budget for fiscal 2014 to the Diet session slated to be convened early next year.
Of the 95.88 trillion yen in expenditures, 23.27 trillion yen will be allocated for national debt service costs.
Social security costs, including ballooning spending on pensions and medical costs, will top 30 trillion yen for the first time ever amid the country's graying population. The expenses, accounting for around 40 percent of policy spending, will rise 4.8 percent from the fiscal 2013 original budget to 30.52 trillion yen in fiscal 2014.
Spending on public works projects, which the government sees having immediate effect on the corporate sector, will increase for the second straight year, up 12.9 percent to 5.97 trillion yen.
Defense expenditures will climb 2.8 percent to 4.88 trillion yen, as Japan moves to strengthen surveillance of surrounding waters as territorial rows with neighboring nations have been intensifying.
The government will also earmark 346.0 billion yen for Okinawa's economic development, up 15.3 percent, apparently in the hope of obtaining the governor's permission for landfill work needed to build a replacement facility for a U.S. military base within the island prefecture in line with an agreement between Japan and the United States.
To expand research and development, a pillar of Abe's economic growth strategy, 5.44 trillion yen will be used for spending related to education and the promotion of science and technology.
Apart from the general account budget, the government will allocate 3.65 trillion yen in the special account budget to accelerate reconstruction work following the devastating March 2011 quake-tsunami disaster and decontamination in areas near the severely damaged Fukushima Daiichi nuclear power plant.
Along with a 5.47 trillion yen extra budget for fiscal 2013 crafted this month, the government will take steps to beat nearly two decades of deflation under the total 100 trillion yen budget.
Flexible fiscal spending is among the "three arrows" of "Abenomics," along with an aggressive monetary policy and the growth strategy aimed at invigorating private-sector investment.
Tokyo has also pledged to halve the ratio of the primary balance deficit to gross domestic product by fiscal 2015 from the fiscal 2010 level and turn the balance into a surplus by fiscal 2020. A deficit in the balance means the country cannot finance government spending other than debt-servicing costs without issuing new bonds.
Japan's central government debt stood at 1,011.2 trillion yen as of the end of September, equivalent to more than 200 percent of GDP.