• Kyodo

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The Diet on Friday enacted a record ¥106.61 trillion budget for fiscal 2021 to finance steps to mitigate the fallout from the coronavirus pandemic as well as rising social security and defense costs, once again forgoing fiscal consolidation.

The House of Councilors passed the budget for the year starting on April 1, following its approval by the House of Representatives in early March. Both houses are controlled by the ruling coalition of the Liberal Democratic Party and Komeito.

Formulating a record high initial budget for the ninth straight year means Japan, the nation with the worst fiscal health among major developed countries, is further delaying repairs to its financial position.

The budget, topping ¥100 trillion for the third consecutive year, could increase further if Prime Minister Yoshihide Suga opts to form a supplementary budget to take additional measures to combat the pandemic. For fiscal 2020, government spending totaled ¥175.69 trillion, expanding from the initial ¥102.66 trillion.

Among policy spending is ¥5 trillion earmarked for reserve funds to support the health care system and economy. The funds can be spent without further approval by the Diet.

So far, the government has utilized virus reserve funds for financial assistance for restaurants and bars that comply with requests to close early to curb the infection spread, as well as for hospitals that dedicate beds to COVID-19 patients. A domestic travel subsidy program to support the virus-hit tourism industry also required funding.

As in recent years, the largest chunk of the budget is allocated to covering social security services, including health care and pensions to support the country’s rapidly aging population, reaching the largest-ever figure of ¥35.84 trillion.

The government has predicted a natural increase in social security spending will be about ¥350 billion in the upcoming fiscal year, cut from its earlier estimate of around ¥480 billion, after lowering national health insurance outlays through drug price cuts and taking other measures.

Defense spending hit a record high for the seventh year in a row to total ¥5.34 trillion as the country tries to strengthen capabilities in new domains such as cyberspace and outer space.

Expenditure for national security includes ¥33.5 billion for the development of standoff missiles capable of attacking enemy vessels from outside the ships’ firing range, at a time when China is flexing its maritime muscle.

To finance the budget, new bond issuances will grow by ¥11.04 trillion from fiscal 2020’s initial plan to ¥43.60 trillion, with tax revenues expected to sharply shrink due to the virus impact. This will increase the debt dependency ratio to 40.9% from the previous year’s 31.7%.

The outstanding balance of state and local government debt in Japan exceeded ¥1.100 quadrillion, or well over 200% of gross domestic product, at the end of fiscal 2019.

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