The Cabinet of Prime Minister Shinzo Abe on Tuesday approved a ¥13.1 trillion supplementary budget, the second-biggest of its kind, to fund an economic stimulus package.
If it clears the Diet next month as planned, it will bring government spending for fiscal 2012 to about ¥103 trillion.
To pay for the extra budget, the administration, led by the Liberal Democratic Party, is expected to sell an additional ¥5.2 trillion in construction bonds issued only to finance public works projects.
Abe is trying to conquer deflation as soon as possible and shore up the tepid economy by bolstering domestic demand through drastic public spending.
But because the supplementary budget will be funded largely by bond sales, criticism is rising that the coalition government of the LDP and its longtime partner, New Komeito, could cause further damage to Japan’s fiscal health, already the worst among major developed countries.
The initial budget for fiscal 2012, which ends March 31, was worth ¥90.3 trillion. It was compiled by the previous administration, led by the Democratic Party of Japan.
This will be the biggest extra budget since fiscal 2009, when the LDP administration of Taro Aso compiled a ¥14.7 trillion stimulus package during the global financial crisis triggered by the Lehman Brothers collapse.
Aso, known for his tendency to favor huge public spending in times of economic hardship, is now serving as deputy prime minister and finance minister in the Abe Cabinet, which was formed Dec. 26 after the LDP took the reins of power from the DPJ.
The latest extra budget will also involve about ¥2.6 trillion in government contributions to the basic national pension program.
To fund this component, the government is likely to issue bonds that would be repaid by future revenue from the planned consumption tax hikes, even though they haven’t even been implemented yet.
The government is expected to submit the supplementary budget to the Diet on Jan. 31, and the LDP and New Komeito are aiming to get it through the Diet by mid-February, sources said.
Abe is hoping the stimulus package will add around 2 percentage points to real gross domestic product growth and create at least 600,000 jobs.
A main pillar of the package is ¥3.8 trillion to accelerate reconstruction work from the March 2011 earthquake and tsunami, and construct more quake-resistant roads, bridges and tunnels throughout the country.
Hoping to support growth areas, the Cabinet allocated ¥3.1 trillion to construct energy-saving factories and promote research on induced pluripotent stem cells, or iPS cells, which can grow into any type of body tissue.
The package includes another ¥3.1 trillion to enhance safety on roads used for school commuting and improve home care services to boost quality of life and revitalize smaller communities.