TOKYO – The Japanese cabinet Saturday approved a budget blueprint that includes record-high spending and bond issuance for the next fiscal year, aggravating an already-outsized government debt problem, and raising pressure to boost taxes.
The ¥90-trillion ($1.15 trillion) package also includes some modest new plans to try and stimulate the slumping economy. And, in a sign of the difficulties of containing spending, it restores funding for a controversial dam project that the ruling Democratic Party of Japan had tried to kill as an example of excessive pork-barrel spending when it first took power just over two years ago. In one proposed spending cut, officials agreed to slash funding for a plan to transfer U.S. Marines out of Japan — a move that could further undermine that long-troubled project.
“I think that Japan’s budget-
Moncler Outlet Online making processes and its reliance on public debt have reached their limits,” Finance Minister Jun Azumi said at a news conference announcing the budget. He called on the Japanese public “to allow us to raise the consumption tax and overhaul the tax-revenue structure” to prepare for a budget situation expected to get only more difficult in coming years amid “a continuously aging society.”
While global financial markets have been rocked by investor concerns about heavy government debt loads in Europe, traders have so far remained calm about Japanese government borrowing, even though Tokyo’s debt is significantly larger than any European nation’s — roughly twice the size of the Japanese economy. But there are growing signs of concern about Japan’s fiscal situation, most recently this past Wednesday, when Rating and Investment Information Inc. lowered Japan’s sovereign debt rating to AA+, the first time a Japanese firm has said the country’s debt isn’t of triple-A caliber. Other credit raters are expected to follow in coming weeks with their own downgrades.
The latest budget — which requires parliamentary approval — underscores the challenges faced by Prime Minister Yoshihiko Noda’s administration. Credit ratings firms and the International Monetary Fund say raising the sales tax is essential, and the government has vowed to prepare a detailed plan by the end of December to double the tax in about five years. But worried about hostile voters and a fragile economy,
http://es5y.com/ many of the ruling and opposition lawmakers remain opposed to the move.
To gain political approval for higher sales taxes, the government has avoided proposing big spending cuts in the latest budget, and employed a variety of accounting gimmicks to create an impression of fiscal discipline.
For example, officials said they held spending for the fiscal year beginning April 1 to ¥90.334 trillion, slightly below this fiscal year’s spending. But analysts say the real total is ¥94.109 trillion because the government will spend new money worth ¥3.775 trillion through a separately managed sub-budget for post-March earthquake reconstruction next fiscal year.
In addition, the government plans to issue a special ¥2.6 trillion IOU to the country’s public pension fund. In return, it will have the fund temporarily cover a ¥2.6 trillion cash payment the government is supposed to make to pensioners next fiscal year. The government doesn’t count the fund’s payments as its own spending, helping lower the formal budget total.
The IOU also helped the government hold planned total new debt issuance at ¥44.244 trillion next fiscal year, below a self-imposed ¥44.3-trillion cap. Although analysts consider the two very similar in practice, the government insists the IOU is different from ordinary government bonds and thus should be counted separately.
The government also kept outside the debt figure ¥2.682 trillion in reconstruction bonds to be sold next fiscal year to raise money for reconstruction, saying they are different because they’re backed by already-enacted future tax hikes.
Overall, Japanese government bond issuance, including reconstruction bonds as well as bonds issued to roll over existing debt, will hit ¥174.231 trillion in the next fiscal year under the new plan. That compares with ¥169.594 trillion this fiscal year, and marks a new record high.
Government borrowing will exceed tax revenue for the third consecutive year for the main budget — excluding supplementary budgets — a situation many call unsustainable. The government will finance 49% of the main budget through bond issuance, a ratio higher than any other main budget compiled in the post-World War II era, the Finance Ministry said.
In order to help boost the economy from its long deflationary funk, the budget includes what the government calls “Priority Measures To Revive Japan,” totaling ¥1.058 trillion. Officials say those measures represent government efforts to balance the need of fiscal reforms and the need of economic stimulus, because the money was made available by scrapping existing budget items they deemed less meaningful.
The measures include ¥144.0 billion to build highway networks, ¥3.5 billion to foster a “new sports culture,” ¥77.3 billion to boost growth in the Okinawa economy, and Y84.5 billion for disaster planning, among other things.
But the total amount is so small that few analysts expect much impact from those measures.
The budget also has a small but politically risky proposal to restart a project to build a local dam that the ruling DPJ had just two years ago singled out as a symbol of the wasteful pork-barrel spending that had been fostered by the previously long-ruling Liberal Democratic Party — a heavy reliance on public works that critics say helped create Japan’s big debt problem in the first place. When the DPJ first took office, officials cut funds for the dam, trying to signal a new direction for Japanese economic policy. The new budget blueprint includes ¥5.6 billion for the project.
“It was a tough decision,” Mr. Noda was quoted by local media firms as saying, though he didn’t elaborate.
In a move likely to draw attention in Washington, the budget proposal also cuts sharply funding for a plan to transfer thousands of Marines from the southern island of Okinawa to Guam — a key part of a complex, contentious plan to transfer the Marines remaining in Japan to a new base that would be built in another part of Okinawa. The plan has long faced difficulties, amid staunch local opposition. It received another blow earlier this month, when the U.S. Congress voted to freeze what the U.S. has pledged to spend for the Guam transfer, pending a more detailed explanation from the U.S. Defense Department explaining the plan. The cuts in the U.S. funding prompted Japan to follow suit, putting spending on hold until the American government signals that it will go forward.
Specifically, the Japanese government blueprint cuts funding for the Marine transfer to ¥7.38 billion from ¥51.86 billion this year. The government does propose maintaining ¥670 million in designing and planning expenses, to allow the project to move forward quickly if the U.S. ends up restoring funds.
To address Japan’s ongoing nuclear crisis, the budget includes ¥451.3 billion for decontamination and waste disposal in the areas surrounding crippled reactors in Fukushima prefecture, ¥76.2 billion for financial aid for victims, and ¥482.7 billion for disaster planning.
Mr. Noda now faces the challenge of pushing the budget through Japan’s divided parliament. While his DPJ has a lower-chamber majority needed to enact the main budget bill, it will need help from the opposition-controlled upper chamber to pass other key budget-related legislation, such as bills to issue bonds as well as the pension IOU. The opposition parties had blocked the passage of a bond bill linked to this fiscal year’s budget until late August, forcing the government to delay various spending plans.
—Megumi Fujikawa contributed to this article.
