• Bloomberg


The government and the ruling coalition agreed on a record budget for the next fiscal year, as Prime Minister Shinzo Abe boosts spending on social security, defense and public works while trying to contain the growth of the world’s biggest debt burden.

Government ministers and lawmakers from the Liberal Democratic Party and New Komeito adopted the ¥95.88 trillion budget proposal for the fiscal year starting April 1 at a meeting Saturday, Finance Minister Taro Aso told reporters. The Cabinet will formally endorse the budget Tuesday.

Japan will issue ¥41.25 trillion of new revenue bonds, Aso said, less than the ¥42.9 trillion earmarked in this year’s initial budget.

Abe aims to pull the country out of a 15-year deflationary malaise and cope with the rising welfare costs of its aging population, while containing public debt that’s more than twice the size of the economy. His government has pledged to halve the primary balance deficit by fiscal 2015 and achieve a surplus by fiscal 2020.

“The government needs to show that it’s moving in the right direction on fiscal discipline but this budget lacks punch,” said Yoshimasa Maruyama, chief economist at Itochu Corp. in Tokyo. “The government must cut spending to reach the planned target of a surplus in 2020.”

The government “will simultaneously achieve the revitalization of the economy and fiscal consolidation,” Abe said Friday at the meeting of government ministers and the ruling coalition, adding that the budget draft will be submitted to the Diet in the new year for debate.

Japan’s growth slowed for a second straight quarter in July-September, as the initial impulse of Abe’s reflationary strategy, dubbed “Abenomics,” started to fade. The sales tax hike in April is forecast to push the economy into contraction, blocking Abe’s efforts for a sustained recovery.

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