The Cabinet on Wednesday approved a record ¥96.34 trillion general account budget for fiscal 2015, as Prime Minister Shinzo Abe struggles to balance his twin goals of fiscal rehabilitation and economic growth.
Despite an 18-month delay on the implementation of the second consumption tax hike, which will take the rate to 10 percent from 8 percent, the administration is likely to attain its key goal of halving the ratio of the primary balance deficit — comprising annual tax revenue and nontax revenue minus outlays other than debt servicing costs — from the fiscal 2010 level by fiscal 2015.
Spending on policy measures, however, will reach a record ¥72.89 trillion, up ¥2.79 trillion from the fiscal 2014 budget, suggesting that the Abe administration has failed to streamline its expenditures.
The central government’s tax revenue is estimated to reach ¥54.53 trillion — the highest in 24 years — as corporate tax payments are expected to grow as the yen’s depreciation bolsters the profitability of export-oriented manufacturers.
New bond issuances will be limited to ¥36.86 trillion, down ¥4.39 trillion from the amount set under the initial budget for fiscal 2014.
The deficit in the primary balance is forecast to shrink by more than ¥4 trillion from 2014 to ¥13.4 trillion in 2015.
A deficit in the balance means the nation can’t finance government spending other than debt-servicing costs without issuing new bonds. Improvement of the balance is therefore seen as a critical first step toward fiscal consolidation.
“I’m confident that we mapped out a budget that will help simultaneously achieve economic revitalization and fiscal soundness,” Abe told reporters Wednesday.
As it stands, 38.3 percent of the fiscal 2015 budget will be financed by new bond issuance, putting pressure on Abe to curb spending further while also attempting to prevent the nascent economic recovery from stalling.
Many experts say it will be difficult to restore the country’s public finances through increased tax revenue alone, and should the pace of economic growth fail to meet the government’s predictions in 2015, such revenues are unlikely to grow.
Abe’s Cabinet said Monday that the economy is expected to grow 2.7 percent in nominal terms in 2015, while some analysts have warned that this projection is too optimistic.
The economy has been lethargic in the wake of the consumption tax hike to 8 percent from 5 percent on April 1 last year.
The administration, which originally compiled a ¥95.88 trillion budget for fiscal 2014, plans to submit the draft budget for fiscal 2015 to the Diet session later this month.
Of the ¥96.34 trillion in expenditures, ¥23.45 trillion — nearly a quarter — will be allocated for national debt servicing costs.
Social security costs, including spending on pensions and medical costs, will rise 3.3 percent from the fiscal 2014 budget to a record ¥31.53 trillion in fiscal 2015.
The expenses, accounting for around 40 percent of spending, will exceed ¥30 trillion for the second straight year as the proportion of elderly people relative to the those of working age continues to rise.
Defense spending will climb 2 percent to a record ¥4.98 trillion, up for the third consecutive year, as Abe aims to strengthen surveillance and defense capabilities to counter China’s growing assertiveness.
Spending on public works projects, which the administration views as having an immediate impact on the corporate sector, will increase slightly to ¥5.971 trillion from ¥5.969 trillion.
The prime minister’s “Abenomics” policy mix is a three-pronged approach combining aggressive monetary easing, flexible fiscal spending and a growth strategy designed to energize private-sector investment.
Along with a ¥3.12 trillion supplementary budget for fiscal 2014 crafted earlier this month, the administration will continue to implement measures necessary to prop up the flagging economy under a total budget of around ¥100 trillion.
On the fiscal reform front, the Cabinet has pledged to turn the balance into a surplus by fiscal 2020 after achieving its fiscal 2015 goal.
Economists are watching for whether Abe can hammer out a concrete plan to attain the fiscal 2020 goal, which he has promised to release by the summer.
“It is a very tough job” to pave the way for the accomplishment of the goal, Finance Minister Taro Aso said. “We have to work harder to cut expenditures in an aggressive manner.”
The fiscal 2015 annual budget is unlikely to be enacted by March 31, the end of the current fiscal year, as the compilation process was deferred due to the Dec. 14 general election. A stopgap budget will probably be needed.