The administration will propose a record budget for next fiscal year of more than ¥96 trillion while also cutting borrowing for the third year in a row, as Prime Minister Shinzo Abe seeks to maintain growth while curbing the heaviest debt burden in the industrial world.
The third annual budget since Abe swept to power in late 2012 also highlights his struggle to contain exploding welfare costs in a fast-aging society while increasing discretionary spending in areas such as defense.
Abe’s ¥96.3 trillion draft budget for fiscal 2015, which begins April 1, is up from this fiscal year’s initial ¥95.9 trillion, two officials said Sunday.
But spending restraint and a surge in tax revenues as the economy recovers allows the administration to cut bond issuance by ¥4.4 trillion to ¥36.9 trillion, the third decrease in a row and the lowest level in six years, the officials said.
It is to be approved by the Cabinet on Wednesday and submitted to an upcoming session of the Diet.
The improved fiscal picture will help Abe slow down the nation’s snowballing public debt, which is more than twice the size of the GDP after years of sluggish growth and huge stimulus spending. The budget for the coming year follows the ¥3.1 trillion extra budget for this fiscal year, approved last week.
With the budget deficit — excluding new bond sales and debt servicing — projected at roughly 3 percent of gross domestic product for the 2015-2016 fiscal year, Abe will meet the administration’s promise of halving the debt ratio from 2010-2011 levels.
But Finance Ministry calculations show that the goal of balancing the budget by 2020-2021 remains ambitious.
Abe raised the consumption tax last April 1 to 8 percent from 5 percent, a move which sent the economy into recession. He postponed a second increase, to 10 percent, by 18 months to April 2017, but the economy’s upturn under his fiscal policies, known as “Abenomics,” is set to boost tax revenues in the coming year.
The draft budget projects tax revenues rising ¥4.5 trillion to ¥54.5 trillion, the officials said, easing somewhat the need to issue more bonds. Debt will finance about 38 percent of the coming year’s budget, down from this year’s 43 percent.
But as Japan continues to run a deficit, debt servicing, interest payments and redemptions, are set to rise about ¥200 billion, to ¥23.5 trillion.
Social welfare spending, such as medical care, is set to rise ¥1 trillion to ¥31.5 trillion.