TOKYO (Kyodo) -- Japan on Friday approved a record draft budget of 114.38 trillion yen ($865 billion) for the next fiscal year, with defense spending hitting a record high and social security costs continuing to rise.
The general account fiscal 2023 budget topped 100 trillion yen for the fifth straight year. Despite record tax revenue of 69.4 trillion yen, it is still not enough to fund ballooning spending, prompting the government to turn to bond issuance.
Among outlays, social security costs made up roughly a third of the total expenditure, highlighting the challenges posed by Japan's rapidly graying population, one of the key factors dragging on the country's economy.
Prime Minister Fumio Kishida has pledged to boost national defense spending to around 43 trillion yen in total over the next five years, bringing the annual budget to 2% of gross domestic product, on par with NATO members.
The defense budget rose to 6.8 trillion yen, including costs related to the realignment of U.S. forces stationed in Japan. That was a sharp climb from 5.4 trillion yen in the current fiscal year when defense outlays were limited to around 1% of GDP.
To cover the substantial increase in defense spending, the government has decided to raise taxes, cut spending in other areas and tap surplus funds. Tokyo has no intention of issuing new government bonds to finance the defense budget expansion.
With debt more than twice the size of its economy, Japan's fiscal health is the worst among major developed nations.
The COVID-19 pandemic, which began in early 2020, and rising inflation exacerbated by Russia's war in Ukraine have led the government to step up spending. Russia launched an attack on Ukraine in February, pushing up global energy and food prices.
Meanwhile, Kishida's abrupt announcement that the government will hike taxes instead of issuing new bonds to fund the defense budget has triggered a strong backlash from the public.
As for its debt, Japan plans to issue 205.8 trillion yen worth of bonds in fiscal 2023, down for the second consecutive year, the Finance Ministry said Friday. The figure was down 9.3 trillion yen from a year earlier on an initial budget basis.
The Kishida administration has promised to cut issuances of new debt and "zaito" debt, designed to finance the government's fiscal investment and loan programs, for the year starting in April.