Fiscal 2014 initial budget requests topped ¥100 trillion ($1.0 trillion) for the second straight year, government officials said Friday, signaling Prime Minister Shinzo Abe will face a rocky road in trying to consolidate the nation’s finances.
The general-account budget requests from all ministries and agencies alone totaled a record ¥99.2 trillion, as Abe has pledged to make every effort to shake the economy out of nearly two decades of deflation by boosting domestic demand, the officials said.
Growing expectations that tax revenues may increase with the economy recovering also prodded many ministries and agencies to ask for a bigger budget, they added.
Earlier this month, Abe’s government approved guidelines for compilation of the budget for the next fiscal year, which starts in April, and a medium-term fiscal reform plan, in which it promised to narrow Japan’s budget deficit by ¥17 trillion over the next two years.
But Abe’s administration did not put a ceiling on the budgetary requests, as tax revenues cannot be projected with a decision yet to be made on whether to proceed with plans to hike the 5 percent sales tax to 8 percent next April.
The budget requests, including expenditures for reconstruction from the March 2011 earthquake and tsunami, apparently failed to signal that the nation hopes to restore its fiscal health, the worst among major developed economies.
The Finance Ministry will endeavor to trim the budget requests that government offices submitted by Friday. The government normally drafts a state budget in December for the next fiscal year.
General-account budget requests entail spending for social security, national defense, industrial development and public works projects.
The Ministry of Land, Infrastructure, Transport and Tourism requested ¥5.9 trillion, up 16.3 percent from the fiscal 2013 initial budget, as Abe has vowed to make infrastructure more resilient to disasters.
The Ministry of Agriculture, Forestry and Fisheries sought ¥2.6 trillion, up 13.6 percent, aiming to bolster the agriculture industry, such as strengthening crop exports and promoting intensive farming.
The Ministry of Economy, Trade and Industry requested ¥1.7 trillion, aiming to accelerate cleanup efforts at the crippled Fukushima No. 1 nuclear complex and to shore up private-sector investment, a pillar of the government’s economic growth strategy, which is one of the “three arrows” of Abe’s policies dubbed “Abenomics.”
Requests from the Health, Labor and Welfare Ministry totaled ¥30.6 trillion, the most ever, and they will increase further if the consumption tax is hiked as scheduled, because the ministry is expected to seek expansion of social security expenses.
The Finance Ministry called for a record ¥25.3 trillion for interest payments and other debt-servicing costs in the fiscal 2014 budget to guard against future issuance of government bonds and the possibility of a rise in long-term interest rates, which would add to the country’s debt burden.
Budget requests for post-quake reconstruction, managed under a separate account, totaled ¥3.6 trillion.
Abe has said he will make a judgment in the fall on whether to carry out the first round of the planned two-stage sales tax hike after hearing opinions from experts and examining Japan’s economic growth data in the April-June period, among other factors. Revised figures for second-quarter gross domestic product are due out Sept. 9.
If Abe goes ahead with the tax hike as legislated, his government is likely to compile an extra budget for this fiscal year through next March to prevent the tax rise from hurting consumer and business spending, raising skepticism about whether Japan will be able to maintain its fiscal discipline.
“It’s difficult to handle the budget, while simultaneously pursuing economic growth and fiscal rehabilitation,” Finance Minister Taro Aso said at a press conference earlier Friday.
Under legislation enacted last year, the sales tax is scheduled to be raised to 10 percent by October 2015 to cover swelling social security costs as the population ages.