14 Januari 2015

Japan's Cabinet OKs Record 96.34 Trillion Yen Budget for FY2015

14 Januari 2015
Armada of Japanese Maritime Self Defense Force (photo : Japanese Navy)

TOKYO (Kyodo) -- Japan's cabinet on Wednesday approved a record-high 96.34 trillion yen ($810.97 billion) general-account budget for fiscal 2015, with Prime Minister Shinzo Abe seeking to balance fiscal rehabilitation and economic growth.

Despite a delay in a consumption tax hike to 10 percent by 18 months to April 2017, the government is likely to attain its key goal of halving the ratio of the primary balance deficit to gross domestic product by fiscal 2015 from the fiscal 2010 level.

The country's policy spending, however, will reach a record-high 72.89 trillion yen, up 2.79 trillion yen from the fiscal 2014 original budget, suggesting Abe's administration has failed to streamline expenditures, mainly those for social security programs.

The central government's tax revenue is estimated to reach 54.53 trillion yen, the highest in 24 years, as corporate tax payments are expected to grow with the yen's depreciation bolstering the profitability of export-oriented manufacturers.

New bond issuance will be curbed to 36.86 trillion yen, down 4.39 trillion yen from the amount set under the initial state budget for fiscal 2014.

The deficit in the primary balance is forecast to shrink by more than 4 trillion yen from the previous fiscal year to 13.4 trillion yen in the next fiscal year starting April 2015.

A deficit in the balance means the nation cannot finance government spending other than debt-servicing costs without issuing new bonds. Improvement of the balance is viewed as a critical first step toward fiscal consolidation.

"I'm confident that we mapped out a budget that will help simultaneously achieve economic revitalization and fiscal soundness," Abe told reporters later Wednesday.

But 38.3 percent of the budget will be financed by new bond issuance in fiscal 2015, putting pressure on Abe to make further efforts to rein in government spending while preventing the economy from languishing.

Many experts say it will be difficult to restore Japan's public finances by only boosting tax revenue, though Abe has put priority on economic expansion.

In the worst-case scenario, tax revenue will not grow as the government estimates, if the pace of economic growth is slower than it forecasts during the year through March 2016.

Abe's cabinet said Monday that Japan's economy is expected to grow 2.7 percent in nominal terms in fiscal 2015, with some analysts saying that projection is too optimistic.

Japan's economy has been lethargic in the wake of the 3-percentage-point consumption tax hike to 8 percent on April 1.

The government, which compiled a 95.88 trillion yen original budget for fiscal 2014, plans to submit the draft budget for fiscal 2015 to the Diet session to be convened later this month.

Of the 96.34 trillion yen in expenditures, 23.45 trillion yen will be allocated for national debt service costs.

Social security costs, including swelling spending on pensions and medical costs, will rise 3.3 percent from the fiscal 2014 initial budget to a record 31.53 trillion yen in fiscal 2015.

The expenses, accounting for around 40 percent of policy spending, will exceed 30 trillion yen for the second straight year amid the country's rapidly graying population.

Defense expenditures will also climb 2.0 percent to a record 4.98 trillion yen, up for the third consecutive year, as Abe aims to strengthen surveillance and defense capabilities to counter China's growing assertiveness in nearby waters.

Spending on public works projects, which the government views as having an immediate impact on the corporate sector, will increase slightly to 5.971 trillion yen from 5.969 trillion yen.

The premier's "Abenomics" policy mix is comprised of drastic monetary policy by the Bank of Japan, flexible fiscal spending and a growth strategy designed to energize private-sector investment.

Along with a 3.12 trillion yen supplementary budget for fiscal 2014 crafted earlier this month, the government will continue to implement measures necessary to prop up the flagging economy under a total budget of around 100 trillion yen.

On the fiscal reform front, Tokyo has pledged internationally to turn the balance into a surplus by fiscal 2020, after achieving the fiscal 2015 goal.

Economists are watching for whether Abe can hammer out a concrete plan to attain the fiscal 2020 goal, as he has promised to release it by the summer.

"It is a very tough job" to pave the way for the accomplishment of the goal, Finance Minister Taro Aso said at a press conference Wednesday, adding, "We have to work harder to cut expenditures in an aggressive manner."

Japan's fiscal health is the worst among major industrialized economies, with public debt at more than 200 percent of GDP. Central government debt has topped 1,000 trillion yen.

The fiscal 2015 annual budget is unlikely to be enacted by the end of the current fiscal year as the budget compilation process was deferred due to the Dec. 14 general election.

If Diet schedules do not allow the budget to pass by March 31, a stopgap budget will be formulated.

(Nikkei Asian Review)

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