Japanese Prime Minister Fumio Kishida’s cabinet approved on Friday a record $940bn budget for the next fiscal year as COVID-19 responses came on top of the premier’s aim of achieving growth and wealth distribution under his new capitalism agenda.
The 107.6 trillion yen ($941.55bn) budget for the fiscal year 2022-2023, which starts in April, is Japan’s biggest-ever initial spending plan, underlining its priority on reviving the pandemic-hit economy over restoring long-term fiscal health.
It marked the tenth straight year that Japan’s annual budget has hit a record. The budget must be approved by parliament by the end of the current fiscal year in March.
The first annual budget under Kishida comes days after parliament approved 36 trillion yen ($315bn) of record extra stimulus spending for this fiscal year to aid the recovery from COVID-19.
Bigger spending meant fiscal discipline was loosening among Japanese policymakers who are counting on the Bank of Japan’s (BOJ) ultra-loose monetary policy to keep borrowing costs low.
“Politicians show no signs of making efforts to repay government debt,” Yasunari Ueno, chief market economist at Mizuho Securities, noted. “The lack of fiscal discipline is the biggest side effect of the BOJ’s massive monetary easing.”
The budget includes 5 trillion yen ($43.7bn) set aside to cover emergency costs of COVID-19, a record defence outlay of 5.37 trillion yen ($47bn), the largest-ever welfare cost of 36.3 trillion yen ($317bn) and 24.3 trillion yen ($212.7bn) for debt servicing.
Public debt in Japan, the world’s third-largest economy, is more than twice the size of its $5 trillion ($43.7bn) economy, the largest among industrialised countries.
Higher tax revenues
Kishida has pledged to improve Japan’s public finances in the long run and the budget foresees new borrowing next fiscal year of 36.9 trillion yen ($323bn), less than the 43.6 trillion yen ($381.6bn) initially planned for this year.
Lower borrowing will be replaced with higher tax revenues, seen rising for the first time in two years to a record 65.2 trillion yen ($570.6bn) as COVID-19 curbs on economic activity are eased.
The government estimates real economic growth of 3.2 percent in the fiscal year 2022-2023, up from a prior estimate of 2.2 percent, which provided the basis for the budget plan.
But with debt still accounting for 34.3 percent of the budget, it will remain difficult to achieve a primary budget surplus by the fiscal year 2025-2026 as the government aims to do.
The primary budget deficit — excluding new bond sales and debt servicing — is seen at 13 trillion yen ($113.8bn) in the fiscal year 2022-2023, improving from 20 trillion yen ($175bn) seen this year, but still far from the government’s target.