Japan government approves record budget spending

Monday, 23 Dec 2013 | 8:37 PM ET

Japanese Prime Minister Shinzo Abe's cabinet on Tuesday approved the draft budget for the fiscal year starting next April, highlighting record spending of 95.88 trillion yen ($921.97 billion) higher tax revenue and a moderate cut in new borrowing.

The government's second annual budget since Abe's election triumph a year ago marks a balancing act between stimulating growth and doing just enough to show it is keen to rein in public debt, which is more than twice the size of the economy.

(Read more: So far, Abenomics is 'close to a bull's eye')

Japanese Prime Minister Shinzo Abe
Getty Images
Japanese Prime Minister Shinzo Abe

The general-account budget for the 2014/15 fiscal year features increases in public works, military and social welfare spending, with total expenditure rising more than 3 trillion yen from this year's initial budget, the Ministry of Finance said.

Ministry officials played down the rise, saying it was inflated by technical factors such as the transfer on-budget of outlays from special accounts, and allocations from a planned April sales tax hike to shore up social security funding. Interest payments also rose while welfare costs increased as Japan's population ages.

Tax revenue is estimated at 50 trillion yen, rising 6.9 trillion yen from this year to a seven-year high, reflecting both expected economic growth of 1.4 percent and an increase in the sales tax to 8 percent from 5 percent that kicks in April.

(Read more: Abenomics scorecard: 'A' for early initiative, 'C' for follow-through)

Too early to tell if Abenomics is working?
Paul Sheard, chief global economist at S&P, says the Plenum in China is unlikely to deliver much in the short-term and discusses the Japanese economy ahead of Thursday's GDP release.

New bond sales will be cut by 1.6 trillion yen from the current fiscal year to 41.25 trillion yen, a second consecutive decrease, but the government still relies on borrowing to cover 43 percent of its spending, down from 46.3 percent this year.

A "flexible fiscal policy", combining near-term stimulus with longer-run consolidation, is part of Abe's economic recipe that also mixes in hefty monetary easing and pro-growth reforms.

(Read more: Will Japan's elderly get burned by 'Abenomics'?)

Earlier this month, the government approved 5.5 trillion yen in extra spending for the current fiscal year to cushion the first increase in the sales tax in April. The second part of the increase to 10 percent is penciled in for October 2015.


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