The Cabinet on Friday approved a record ¥115.5 trillion ($735 billion) budget proposal for fiscal 2025 starting in April, surpassing last year’s record of ¥114.3 trillion.
The proposal exceeded ¥110 trillion for the third consecutive year in order to increase spending on defense, social welfare costs for a rapidly aging population and regional economies.
Defense spending will increase by 9.5% to ¥8.6 trillion amid an ambitious five-year ¥43 trillion program that aims to allocate 2% of GDP to defense by 2027.
Within the budget, ¥939 billion is for acquiring standoff capabilities including long-range missiles and a satellite constellation to enhance counterattack capabilities.
Outlays will include half a trillion yen in defense capabilities in integrated air and missile defense, including PAC-3 MSE missiles.
A total of ¥638.7 billion will go to the development of next-generation fighter aircraft through the GCAP International Government Organisation (GIGO), jointly established by Japan, Britain and Italy, and for research into underwater vertical launch systems.
In addition, the budget allocated ¥400 billion to improve working conditions for Self-Defense Forces members, including ¥1.2 million in benefits for general sergeant candidates who live on bases or in barracks.
The budget reflects Prime Minister Shigeru Ishiba’s desire to upgrade the SDF’s pay structure and boost career-building support.
The enormous boost in defense spending comes almost a year after Japan signed a $2.35 billion (¥348 billion) deal with its ally, the U.S., to buy 400 long-range Tomahawk missiles, which have a 1,600-kilometer range, as it ramps up its military capacity to counter regional security threats.
Social security spending was estimated to be a record ¥38.2 trillion, up 1.5% from ¥37.7 trillion, despite the health ministry’s plan to curb medical bills and drug prices, as the graying population hikes up demand for pension, health services, and care-giving.
Grants to local governments, estimated at a record ¥19.7 trillion, will be allocated to regional revitalization, a key campaign policy for Ishiba, who believes that eliminating the gender pay gap among different regions will redirect women and young people out of overpopulated Tokyo, where wages are higher.
“How do we realize regional economies that the youth and women will choose? This is actually an important question,” Ishiba said, speaking to Japan’s largest business lobby group, Keidanren, on Wednesday.
New bonds worth ¥28.6 trillion will fund the proposed budget, despite the International Monetary Fund calling on Japan last month to avoid debt issuance, increasing the nation’s public debt, which is twice the size of its economy and the largest among major economies.
However, bond issuance is expected to decrease for the fourth consecutive year thanks to record tax revenues, estimated at ¥78.4 trillion.
The expansion of tax revenues is multifactored –– price hikes, the lifting of reductions for income tax and resident tax, and an expected increase in corporate tax as the weak yen drove up companies’ earnings.
The proposal by Ishiba’s Cabinet, composed of Liberal Democratic Party lawmakers, will be put to a vote in the parliamentary session starting in January.
However, just as the ruling LDP-Komeito coalition was unable to pass bills on fiscal 2024’s supplementary budget and political reform without conceding to opposition parties’ demands in the latest session, the budget for fiscal 2025 will not pass without back-and-forth negotiations.
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