The government's record ¥97.45 trillion budget for fiscal 2017, adopted by the Abe administration last week, appears to reflect the shaky state of the nation's economic revival. Growth in tax revenue, which Prime Minister Shinzo Abe has touted as the fruit of his Abenomics policies, stagnates as corporate profits remain at the mercy of the yen's exchange rate fluctuations. While the issue of new government bonds will be barely kept below the previous year's initial budget level thanks to anticipated pickup in tax revenue on the yen's recent downturn and the low debt-servicing costs thanks to the Bank of Japan's massive monetary easing operations, lax efforts to tame the ballooning expenditures continue to threaten the prospect of fiscal consolidation.
The government emphasizes that the budget achieves both resuscitation of the economy and fiscal rehabilitation in that the amount of new bond issuance will decline for the seventh year in a row while its tax income is expected to rise again. A closer look shows that the assessment stands on precarious grounds. Abe maintains that he has not given up on the government's fiscal consolidation goals. But the administration should stop relying on rosy scenarios and talk straight.
The size of the general account budget hit a record high for the fifth year in a row since Abe returned to the helm of government in late 2012. The biggest factor is mushrooming social security expenses, which grow every year with the rapid aging of the nation's population and now account for 30 percent of the government's annual spending.