Japan's record budget spending highlights balancing act
By Tetsushi Kajimoto
TOKYO (Reuters) - Japanese Prime Minister Shinzo Abe on Tuesday secured cabinet approval for a draft budget for the next fiscal year that aims to split the benefits of higher tax revenue between trimming fresh borrowing and stimulating the economy with record spending.
The government's second annual budget since Abe's election triumph a year ago marks a balancing act between boosting growth and doing just enough to show it is keen to rein in public debt, which is more than twice the size of the economy.
Of projected record spending of 95.88 trillion yen ($921.97 billion) in 2014/15, about one-third will be spent on social security while debt servicing costs will account for nearly one-quarter.
"Abe vows to seek both growth and fiscal consolidation, but the focus now needs be on stimulus," said Hidenori Suezawa, analyst at SMBC Nikko Securities. "Hasty fiscal tightening could derail the economy and foil the sales tax plan in 2015."
Spending in the general-account budget for the year starting April 2014 will rise more than 3 trillion yen from this year's initial budget, the Ministry of Finance said, with higher outlays for public works, military and social security.
Ministry officials played down the rise, however, saying it was inflated by technical factors such as the transfer on-budget of outlays from special accounts, and allocations from a planned April sales tax hike to shore up social security funding. Interest payments also rose while welfare costs increased as Japan's population ages.
Tax revenue is estimated at 50 trillion yen, rising 6.9 trillion yen from this year to a seven-year high, reflecting both expected economic growth of 1.4 percent and an increase in the sales tax to 8 percent from 5 percent that kicks in April.
New bond sales will be cut by 1.6 trillion yen from the current fiscal year to 41.25 trillion yen, a second consecutive decrease, but the government still relies on borrowing to cover 43 percent of its spending, down from 46.3 percent this year. Continued...