Cabinet approves record ¥96.7 trillion budget for fiscal 2016

Kyodo, AP

Prime Minister Shinzo Abe’s Cabinet on Thursday approved a record-high ¥96.72 trillion budget for fiscal 2016, focusing on welfare measures to tackle a rapidly aging society while trying to restore fiscal health.

The general-account budget for the fiscal year starting next April also features higher spending on defense and official development assistance, reflecting Abe’s intention to expand the country’s security and diplomatic presence.

In an attempt to revitalize local economies ahead of an Upper House election next summer and lure more foreign tourists, the government will double spending on the tourism agency.

The government plans to submit the draft budget for fiscal 2016 to the Diet session to be convened on Jan. 4 and to seek its enactment by the end of March.

Excluding debt-servicing costs, a record-high ¥73.11 trillion will be used to fund operations and programs, with social security expenses growing to a record ¥31.97 trillion, accounting for more than 40 percent of policy-related spending.

Tax revenue is expected to climb to a 25-year high of ¥57.60 trillion, based on a government projection pointing to a gross domestic product increase of a real 1.7 percent and 3.1 percent on a nominal basis.

But the government’s economic growth forecast is higher than those of the Bank of Japan and many private-sector economists, raising the possibility of revenue falling short of the estimate if the pace of expansion is slower than the government expects.

The projected rise in revenues would enable the government to slash new government bond issuance by some ¥2.4 trillion from the fiscal 2015 initial budget to ¥34.43 trillion, with the ratio of debt issuance to total revenue falling to 35.6 percent, the smallest in nine years.

Despite the drop in bond dependency, however, Japan still relies heavily on debt compared with other major economies. The ratio for fiscal 2015 stood at 15.5 percent in the United States, 25.4 percent in France and 0.1 percent in Germany.

Saddled with a huge national debt more than double the size of GDP, Japan has pledgedto restore fiscal health with the goal of turning the primary balance deficit into a surplus by fiscal 2020.

A deficit in the primary balance means the government cannot finance its annual budget, excluding debt-servicing costs, without issuing new bonds.

In an effort to pursue fiscal consolidation, the effective increase in the budget from the previous year will be capped at around ¥530 billion, meeting the government’s fiscal reform plan.

Under the fiscal 2016 budget, the government will earmark a record ¥31.97 trillion for social security expenses, up 1.4 percent from the fiscal 2015 initial budget to expand child care and nursing care services to cope with an aging society.

Defense expenses will rise 1.5 percent to a record ¥5.05 trillion, up for the fourth straight year. The Cabinet endorsed plans to purchase pricey U.S. surveillance drones and F-35 fighter jets as Tokyo steps up cooperation with Washington amid China’s increasingly assertive activity in regional seas.

The defense budget is the first since Japan enacted new security legislation in September enhancing the country’s military role and since Japan revised its bilateral defense guidelines with the U.S. earlier in the year to allow broader cooperation between the two allies.

Japan is bolstering surveillance and defense of its southern islands, where it has a territorial dispute with China. The budget plan also includes the purchase of an advanced Aegis radar-equipped destroyer with missile-defense capability, submarine construction and sonar development.

The Defense Ministry plans to spend ¥14.8 billion this year on some of the multibillion-dollar, multi-year purchase of three “Global Hawk” unmanned drones, as well as six F-35 fighter jets for ¥138 billion and a Boeing mid-air refueling aircraft KC-46A at ¥23 billion.

The government will raise ODA spending by 1.8 percent to ¥551.9 billion to enhance grant aid to developing countries.

It will double the budget for the Japan Tourism Agency to ¥20 billion to step up efforts to achieve a goal of increasing the number of foreign tourists to 30 million annually.

Expenditure on public works projects will rise slightly to ¥5.97 trillion, with the focus on improving existing infrastructure.

The budget highlights Abe’s new three “arrows” under his Abenomics” policy package, including expanding nominal GDP by 20 percent from the current level to ¥600 trillion by around 2020 and raising the fertility rate from 1.4 to 1.8 by around 2025.