Cabinet OKs record Y95.88 trillion budget

TOKYO —

Japan approved its biggest ever budget Tuesday, as an improving economy and a sales tax hike made room for more defense spending and the first step towards achieving a balanced budget.

Prime Minister Shinzo Abe’s cabinet rubber-stamped a plan that will see the government spend 95.88 trillion yen in the year from April 2014, up from 92.61 trillion yen the previous year.

The figure is the largest in Japan’s history due to changes in accounting rules and the sales tax, which will rise from five percent to eight on April 1.

The lion’s share of the extra revenue generated by the sales tax rise is ear-marked for spending on snow-balling medical fees and other social welfare costs.

Even so, the projected primary balance deficit—the shortfall between what the government gets and what it spends on everything apart from debt-servicing—is expected to shrink by 5.2 trillion yen to 18 trillion.

That means Japan’s national debt—already the highest proportionately in the industrialised world—will continue to rise, but at a slower pace.

The government’s official policy is that Japan’s primary balance should be in surplus by 2020, although most analysts expect that target to be missed.

In line with defense policies announced last week that are intended to shore up the way Japan protects its remote islands at a time of rising tensions with China, military spending will increase for the second consecutive year.

Overall it will rise 2.8% to 4.88 trillion yen, accounting for 5.1% of the whole budget.

The bulk of the increase reflects salary hikes, with the remaining 0.8% set aside for new fighter jets, drones and a new amphibious unit.

Until last year, Japan’s military budget had been shrinking for a decade, in contrast with China’s, which has seen double digit rises most years over the same period.

But that did not stop Beijing lashing out at the plans when they were announced last week, with a spokesman saying they “must cause concern to neighboring countries in Asia”.

Social welfare spending will rise 4.8% to 1.40 trillion yen and will be partially financed by the VAT rise.

The government would like to reduce medical spending, for example by using generic drugs, and divert the cash to support households with children, such as by providing more daycare as part of an effort to reverse Japan’s chronically low birthrate.

Science and technology spending will rise 2.8% to 1.34 trillion yen, reflecting Abe’s aim of revitalising the economy by helping to make Japan Inc more globally competitive.

Masamichi Adachi, senior economist at JP Morgan, said the budget did little to help Japan’s poor fiscal health improve, with a weighting on stimulus to offset the coming sales tax hike.

“That is all right as long as an economic boom continues, but sooner or later the question will arise over the structural problems of the fiscal balance.

“The primary balance improvement in fiscal 2014 is mainly thanks to a sales tax increase, but that won’t happen in years to come.

“To rely on increases in tax income from the economic boom we need to carry out structural changes that will improve growth potential, such as loosening labor regulations,” he said.

(c) 2013 AFP

  • 4

    Magnet

    In other words, the government just approved an increase in their "bonuses"...

  • 7

    wtfjapan

    "To rely on increases in tax income from the economic boom we need to carry out structural changes that will improve growth potential, such as loosening labor regulations,” yeah let companies hire/fire anybody they like whenever they like, and only pay them 600yen/hr. Oh and well throw and extra 5% consumption tax on top of that as well. yep thatll get the economy going for sure.

  • 2

    Onniyama

    wtfjapan. You took the words right out of my mouth.

  • 5

    CH3CHO

    What is this article? AFP does not seem to know the ABC of politics here.

    The Parliament approves the budget. What was approved by the Cabinet today is a proposal of budget which is to be discussed in the Parliament through the March next year.

  • 4

    papigiulio

    The lion’s share of the extra revenue generated by the sales tax rise is ear-marked for spending on snow-balling medical fees and other social welfare costs.

    HAH! Dont make me laugh, If we can look at fukushima or tohoku for examples we know the money will most definitely NOT arrive where it is suppose to be.

  • 6

    Reckless

    Wow! So the man finally gets some breathing room to deal with the OUTRAGEOUS government debt which will have to be dealt with in an apocalyptic fashion sooner or later, and he decides to just spend more,,, sounds like one of those abusive drunk gambler husbands you see in the movies.

  • 2

    KnowBetter

    WOW, the Japanese government has the mentality of a five year old who has to pay for a lot of broken windows (slingshot) with his allowance and just as his allowance gets bigger he goes out and blows it all on candy.

    Here a thought, if health care cost going through the roof, why not make smokers pay a proportionately higher rate as smokers not only poison themselves but all those around them when they smoke and those who come into contact with them EVEN when they are not smoking. Raise the price of cancer sticks as well to the point that they are not worth the habit. Smokers en masse are a major drain on the real economy with sick days and smoke breaks. TAX THEM FIRST AND TAX THEM HIGH!!! Smoking is an option, breathing clean air is not! It's a must and so is being able to afford food and a roof over your head. Taxing the working class more doesn't boost the economy, it stalls it.

  • 5

    Peter Payne

    In other news, the 2015 budget calls for the highest tax rate to rise to 45%, which means 55% when you add in prefectural/city taxes. Which means Japan is finally taking more than 50% of your money (well, the money of really rich people, but still, successful businessmen etc) and doing stuff we know to be criminally wasteful, like subsidizing nuclear power, whaling, building roads in Okianwa with funds earmarked for Touhoku and so on.

    Malaysia is looking really good these days.

  • 1

    Cricky

    Nothing, a long term solution to Japan's woes again overlooked. Today is the focuss the Government needs to think about 10 years or more, sadly the leaders are so short sighted (and old) they just don't care.

  • 0

    Simona Stanzani

    well, of course! increasing the already ballooning public debt with VERY questionable expenses is going to make the economy boom! D'OH.

  • -1

    ex-japan-visitor

    If this increase in government spending is suppose to create a greater increase, proportionally, in Japan's GPD, why just stop at such a small increase? Why not collect virtually 100% of all economic activity through taxes. Have the government spend it and then wait for the prosperity to come forth. Wait........I remember.......China and Russia tried this and it failed miserably. Communism doesnt work because it destroys incentives. Government isnt efficient because they dont face competition. These realities - a lack of incentives for people and a lack of competition for government - never change, regardless of whether the tax rates are set at 20%, 30%, 50% or more. Bigger government means a poorer life experience for the country's people.

  • 1

    Aizo Yurei

    Them roads & bridges to nowhere aren't going to build themselves.

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