The general account budget for fiscal 2015 is likely to reach a record high of about ¥98 trillion, exceeding the ¥95.9 trillion initial budget for this year, Finance Ministry sources said.
With Prime Minister Shinzo Abe eager to shore up the flagging economy, policy spending for the fiscal year starting next April, which will be used on social security programs and public works projects, is expected to expand to around ¥74 trillion, up from ¥72.6 trillion for 2014.
The government will keep new bond issuance below ¥40 trillion for the first time in six years, as tax revenue is forecast to grow with corporate profits improving due mainly to the yen’s depreciation, the sources said Wednesday.
Central government tax revenue for fiscal 2015 is projected to total nearly ¥54 trillion, an improvement of ¥4 trillion from the initial budget for this year, they said.
But the Abe administration, despite promising to promote fiscal rehabilitation, won’t make any drastic spending cuts amid the economic slowdown triggered by the consumption tax hike to 8 percent on April 1.
Policy spending, which excludes debt-servicing costs but accounts for more than 70 percent of the general account budget, will be reduced from the roughly ¥76 trillion that ministries and agencies have requested.
Spending on social security, however, will rise above ¥30 trillion for the second consecutive year as welfare and medical expenses balloon along with the rapidly graying senior population.
With Abe keen to strengthen surveillance of surrounding waters amid the Senkaku territorial row with China, defense expenditures will also climb.
Spending on public works projects, which Abe sees as having immediate benefits for the economy even if only for the short term, will reach around ¥6 trillion, similar to the level in fiscal 2014.
Subsidies for local governments are expected to drop because their tax revenues are likely to rise.
On the revenue front, the government won’t be getting the estimated ¥1.5 trillion that would have been generated if the doubling of the consumption tax to 10 percent had been completed next October as planned.
Abe decided last month to put off the increase by 18 months to April 2017 after the economy marked a second straight quarter of contraction through September, tipping it into recession.
Nevertheless, overall tax revenue is set to rose as corporate tax revenue grows, which would help the government achieve its goal of halving the ratio of the primary balance deficit to gross domestic product by fiscal 2015 from the fiscal 2010 level.
A deficit in the balance means government spending other than debt-servicing costs can’t be financed without issuing new bonds. An improvement in the balance is viewed as the critical first step toward fiscal consolidation.
Japan’s fiscal health has long been the worst among major industrialized economies, with public debt equivalent to more than 200 percent of GDP. Outstanding central government bonds totaled a towering ¥1.039 quadrillion as of Sept. 30.
The fiscal 2015 draft budget is planned to be approved by the Cabinet on Jan. 14, after Finance Minister Taro Aso arranges with related ministers about how much the government will spend for social security reform and subsidies to prop up regional economies.
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