Japan’s initial draft budget has hit a record high for the 10th consecutive year, with the government on Friday approving a ¥107.6 trillion ($940 billion) proposal for fiscal 2022, which begins in April.
With the Japanese population rapidly aging, the country’s social security costs will increase by ¥440 billion to reach ¥36 trillion for the first time, while the defense budget will also be a record amount for the eighth straight year, coming in at ¥5.4 trillion compared with ¥5.34 trillion this fiscal year.
The bond dependency ratio is estimated to be 34.3%, as the government plans to issue new bonds worth ¥36.9 trillion to finance the massive budget. Debt servicing costs will be ¥24.3 trillion.
Although the bond dependency ratio fell from 40.9% for the current fiscal year’s initial budget, Japan nonetheless has to depend on debt to finance more than a third of its spending, meaning public debt — already equivalent to nearly 250% of the country’s gross domestic product — will further snowball.
Since more companies will likely intensify their activities as the economic impact of the coronavirus pandemic weakens, the government estimates that its tax revenue will hit a record high of ¥65.2 trillion.
The budget bill will be deliberated in an ordinary Diet session expected to be convened next month.
Some of the budget items appear to reflect major aspects of Prime Minister Fumio Kishida’s policy agenda.
For instance, as Kishida has emphasized the strengthening of the country’s scientific and technological capabilities, the expenditure on these fields will be boosted by ¥15 billion from the current fiscal year to ¥1.38 trillion, the highest ever.
His administration will invest in a slew of projects, such as those related to artificial intelligence, quantum research, semiconductors, next-generation mobile communication networks and space development.
To prepare for emergency situations caused by the coronavirus pandemic, the government will also allocate ¥5 trillion in reserve funds, as it did for the current fiscal year.
With the general account budget having continued to swell over the past decade, some experts have expressed concerns about whether the government is really serious about cutting expenditure to improve the country’s fiscal condition, saying that the pandemic may be further loosening fiscal discipline.
On Monday, the Diet approved a ¥35.98 trillion extra budget bill to finance the Kishida administration’s gargantuan economic stimulus.
The government plans to spend ¥55.7 trillion on the stimulus, which will be partially funded by the fiscal 2022 budget. Kishida has said the government thinks of those two budgets as a single 16-month budget to cover December to March 2023.
Takahide Kiuchi, executive economist at Nomura Research Institute, wrote in a report on Monday that it has become a habit in the past two years to draft huge stimulus packages with supplementary budgets to add extra spending.
The government, however, “does not seem to be making efforts to restrain spending on other budget items to balance out the budget for pandemic measures,” he wrote.
“With this attitude, the size of spending will swell and fiscal health will be aggravated whenever events like the coronavirus pandemic occur.”
Kiuchi added that items for the extra budget should have been strictly limited to those that need to be implemented in a swift manner to tackle short-term COVID-19 issues, while the general budget should cover policies to contribute to medium- and long-term economic growth that have been subjected to careful scrutiny.
During a media briefing session Thursday, some reporters pointed out that some of the items included in the extra budget do not appear so urgent, such as those on defense equipment, and asked whether the Finance Ministry is losing its ability to restrain unnecessary spending.
Ministry officials defended those items, saying they are pressing issues. They also said they were able to reduce the increase in social security spending, bringing the overall figure down from an initially estimated ¥660 billion.
The pandemic has put heavy pressure on the government to spend more, with lawmakers from both ruling and opposition parties calling for the economic impact to be alleviated.
For the Lower House election held on Oct. 31, none of the main parties made a major mention of the need to improve Japan’s fiscal health.
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