TOKYO -(Dow Jones)- Japan’s government on Friday approved a record level of spending in its budget proposal for the next fiscal year, but still managed to adhere to its self-imposed fiscal reform targets for spending and new bond issuance.
The government’s initial budget for the fiscal year beginning April 2011 contains Y92.412 trillion in total spending, exceeding the previous record of Y92.299 trillion for the current fiscal year due to increased debt-servicing costs, the government said.
Yet Prime Minister Naoto Kan’s cabinet kept the amount of new debt issuance at Y44.298 trillion, below this fiscal year’s Y44.303 trillion. It also held its main spending—or the sum of policy outlays and financial aid for local governments–at Y70.863 trillion, below this year’s Y70.932 trillion.
The government now faces the challenge of passing the budget through parliament by the March 31 end of this fiscal year.
The budget means that the government has satisfied the first-year requirement of a new fiscal overhaul plan created earlier this year that aims to balance the nation’s main budget over the coming decade. Although Japan’s fiscal state remains perilous, with the amount of planned debt issuance expected to exceed tax revenue for the third straight year, signs of the government’s commitment to fiscal overhaul may reassure investors in Japanese government bonds.
Japanese officials find it increasingly important to rein in the nation’s ballooning debt, which is now roughly twice Japan’s annual economic output. Europe’s deepening debt crisis has boosted their discomfort over their country’s still-growing liabilities.
While the ruling Democratic Party of Japan and its coalition partners can pass the main budget bill because of their dominance in the lower chamber, other budget-related legislation requires approval from the upper chamber, which is controlled by increasingly combative opposition parties.
The budget estimates the next fiscal year’s tax revenue at Y40.927 trillion, compared with an estimated Y39.643 trillion for the current fiscal year.
The government plans to use Y7.187 trillion in non-tax revenue, including one-time sources of revenue from separately managed government accounts as well as gains on the nation’s $1.1 trillion foreign reserves. Its heavy reliance on those sources has already raised concerns over the long-term feasibility of the fiscal reform plan.
The primary balance, a measure of how reliant Japan is on borrowing to pay for its policy spending, is Y22.7 trillion in deficit under the fiscal 2011 budget, the government said.
Few economists expect the Japanese economy to get much boost from the budget, in which debt-servicing costs and social security spending make up about 55% of total spending. Aid for local governments accounts for another 18.2%, and the rest is divided among various policy measures such as defense, public works projects, education and technology.
In the meantime, the government plans to boost the Ministry of Finance’s accumulated funding limit for currency-market intervention by Y5 trillion to Y150 trillion.
But government officials told Dow Jones Newswires that the move is mostly technical and doesn’t necessarily mean that more intervention is on the card. It is partly to make up for Y2 trillion spent by the government for a Sept. 15 yen-selling intervention, one of them said.
-By Takashi Nakamichi, Dow Jones Newswires; +81-3-6269-2781; takashi.nakamichi@dowjones.com
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