Cabinet OKs record budget for 2014

Abe hopes to defeat long deflation with spending; tax hike could hurt

Kyodo

The Cabinet approved on Tuesday a record ¥95.88 trillion general account budget for fiscal 2014 as the administration of Prime Minister Shinzo Abe seeks simultaneously to conquer decades of deflation and restore the nation’s precarious fiscal health.

With spending on defense, public works and social security programs increasing, policy spending will reach a record ¥72.61 trillion, up ¥2.24 trillion from the original budget for this year.

To promote fiscal rehabilitation, new issuance of bonds will be curbed to ¥41.25 trillion, down ¥1.60 trillion from the initial budget for fiscal 2013 due in part to an expected increase in tax revenue.

Money from taxes is estimated to reach ¥50 trillion, the most in seven years, as the sales tax will be lifted to 8 percent in April and corporate tax payments are expected to grow on the back of economic recovery.

The deficit in the primary balance — annual tax revenue and nontax revenue minus outlays other than debt servicing costs — is forecast to shrink by ¥5.2 trillion from 2013 to ¥18.0 trillion, the second-biggest improvement after ¥6.8 trillion in fiscal 2007.

But 43.0 percent of the budget will be financed by new bond issuance, underscoring the eagerness of the Abe administration to spend massive amounts of money to bolster the “Abenomics” policy mix that also entails preferential treatment for companies, according to analysts.

If the new budget fails to prop up domestic demand, the sales tax hike could choke the nascent recovery and prevent overall tax revenue from meeting government projections, hampering Abe’s efforts to restore public finances, the worst among industrialized countries, the analysts say.

“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 the Liberal Democratic Party.

The administration compiled a ¥92.61 trillion initial budget for fiscal 2013.

Of the upcoming ¥95.88 trillion budget, ¥23.27 trillion will be allocated for national debt servicing costs.

Social security costs, including ballooning spending on pensions and medical care, will top ¥30 trillion for the first time amid the graying population.

  • Antoine B.

    Hope for an increase of Japanese market demand is so foolish in a country where the population is getting older and already decreasing. Abe is trying to recreate the situtation of the 70′s but that will NEVER work!
    The salvation of Japan can only be found through better exportation with local value creation.
    Japan has a huge pool of small and medium businesses with skills and production power, but these are not exporting, or only through the larger Japanese firms.
    The German model should be followed (not in the way Aso thinks, though), with a strong support to SME so that they can start exporting directly their high value products.

    Only that way Japan will be able to create value, using it’s own strength. And not hoping to suck out the savings of the population, like Abe does now.