RELATED STORIES: PAGES 2, 6 – The Cabinet of Prime Minister Shinzo Abe on Thursday approved a record-high ¥97.45 trillion budget for fiscal 2017, as swelling social security costs moved Japan further away from its goal of reining in overall spending and restoring its tattered fiscal health.
The budget for the year starting in April also features increased defense spending for the fifth straight year since Abe took office in 2012 and expenditures to rejuvenate the economy by investing in growth areas.
Excluding debt-servicing costs, a record-high ¥73.93 trillion is earmarked for policy spending in the general account, with spending on social security comprising the largest portion of it.
Tax revenue is expected to increase 0.2 percent to ¥57.71 trillion from the current year’s initial budget in anticipation of the yen’s weakening that would boost corporate earnings.
It enables Japan to cut its dependence on debt, albeit slightly, to 35.3 percent from 35.6 percent in the fiscal 2016 initial budget. New bond issuance is reduced by ¥62.2 billion to ¥34.37 trillion in fiscal 2017, while total issuance comes to ¥153.96 trillion, with roughly two-thirds of that amount for refinancing bonds.
“We need to make tireless efforts to make both social security and finances sustainable by promoting reform of medical and elderly care,” Chief Cabinet Secretary Yoshihide Suga said at a news conference.
Japan faces the formidable task of achieving economic growth and restoring fiscal health, the worst among major developed countries, after Abe decided to postpone the second round of the sales tax hike to 10 percent from the current 8 percent to October 2019 from April 2017 as initially planned.
Finance Minister Taro Aso said fiscal rehabilitation has become more difficult since the postponement of the sales tax hike.
Still, Aso said Japan is “not at all moving in the wrong direction,” noting that the issuance of new government bonds is reduced for fiscal 2017.
Tokyo has pledged to attain the goal of turning its primary balance deficit into a surplus by fiscal 2020, as the country’s debt is more than double the size of its gross domestic product. The deficit widened for the first time in five years.
With a deficit in the primary balance, a country cannot finance its annual budget — excluding debt-servicing costs — without issuing new bonds. Debt-servicing expenses make up some 24 percent of the ¥97.45 trillion budget in fiscal 2017.
The government plans to submit the draft budget — along with a ¥622.5 billion extra budget for fiscal 2016 compiled to allocate funds mainly for disaster relief and defense — to the Diet during the regular session starting early next year.
The latest tax revenue estimate is based on the government’s projection that the economy will grow 1.5 percent in real terms, which is more upbeat than the roughly 1 percent expansion projected by private-sector economists.
The fiscal 2017 budget includes funds to give better pay to nursery teachers and workers at elderly care facilities, and to encourage research and development in areas largely seen as promising, such as artificial intelligence, robotics and the so-called internet of things.
Among major outlays, social security costs — including pensions and medical expenses — will increase 1.6 percent from the fiscal 2016 initial budget to ¥32.47 trillion.
As curbing social security expenses, which roughly account for a third of the draft budget, is a priority for an aging Japan, the government capped year-on-year growth at ¥500 billion, ministry officials said.
Defense spending comes to a record-high of ¥5.13 trillion, up 1.4 percent, to better respond to security threats, mainly from China’s maritime assertiveness and North Korea’s ballistic missile development, they said.
Expenditure on official development assistance marks a 0.1 percent increase to ¥552.7 billion, reflecting the Abe administration’s drive to make contributions to global peace-building efforts.
A total of ¥5.98 trillion is allocated for public works projects and other purposes, such as strengthening the defense of the Senkaku Islands, claimed by China, in the East China Sea, and boosting tourism in Japan to achieve a goal of attracting 40 million foreign visitors in 2020. The budget for the Japan Coast Guard reaches a record high of ¥210.6 billion on the initial budget basis.
In the supplementary budget approved Thursday, the third for fiscal 2016, Japan earmarked an additional ¥622.5 billion to provide disaster relief following powerful earthquakes and typhoons, and to bolster Japan’s defense against ballistic missiles and increase surveillance.
After the yen’s advance apparently hurt Japanese companies, the government downgraded its tax revenue estimate for the year through March by ¥1.74 trillion from its original plan to ¥55.86 trillion.