source: www.reuters.com
(Reuters)
- Japan's government approved on Tuesday a $1.02 trillion draft budget for the
next fiscal year that aims to nudge tax revenues above new bond sales for the
first time in four years, but still relies on borrowing to cover 46.3 percent
of its spending.
The
first full-year draft budget compiled under Prime Minister Shinzo Abe, who led
his Liberal Democratic Party back to power last month with promises of economic
revival, marks symbolic improvement after years of deterioration.
With
the 92.6 trillion yen ($1.02 trillion) in spending, the government effectively
trimmed the size of its draft budget from the previous year for the first time
in seven years, taking into account government funding for basic pension
payouts.
Still,
the budget size hovered around record levels, underlining the difficulty which
Abe's government is facing in striking a balance between economic stimulus and
fiscal reform.
Taken
together with an 10.3 trillion yen extra stimulus plan signed off earlier this
month and financed in more than half by new bond sales, it drives borrowing to
new highs, pushing Japan's record high debt further into uncharted territory.
"We
managed to make the annual budget slimmer than before," Finance Minister
Taro Aso told reporters.
"Without
the extra budget, the economy would fall into a severe situation in
April-June," he added.
In
fiscal year 2013/14 starting in April, the government plans to issue new bonds
worth 42.8 trillion yen, below this year's 44.2 trillion yen initial target.
But combined with the extra budget borrowing of 5.2 trillion, Abe's government
will borrow 48 trillion yen, though technically the extra budget borrowing will
be booked in the 2012/13 accounts.
Tax
revenue is targeted to rise 750 billion yen to 43.1 trillion yen, mainly
reflecting an expected pick-up in economic growth to 2.5 percent from 1.0
percent forecast for the current year.
FISCAL
TARGETS
Within
the 92.6 trillion yen general-account budget, spending excluding debt servicing
costs is estimated at about 70.3 trillion yen, slightly less than the 71
trillion yen earmarked in the regular budget for the current fiscal year.
The
government is expected to submit the extra budget to parliament this week and
the 2013/14 budget in late February.
The
previous government led by the Democratic Party of Japan had set a 44 trillion
yen ceiling on annual bond issuance and a 71 trillion yen cap on spending
excluding debt servicing costs.
Rating
agencies, institutions such as the International Monetary Fund and many
economists have said that those limits were seriously insufficient, allowing
Japan to rack up budget deficits of close to 10 percent of GDP, above those
seen in some of the most indebted euro zone countries.
"We
need to see whether the government can carry out its growth strategy to boost
the economy, thus increase tax revenue, and also whether it can continue to cut
expenditure," said Yasuo Yamamoto, senior economist at Mizuho Research
Institute.
"I
cannot deny a chance that the government will compile an extra budget again if
the economy won't recover ... It may raise public work spending, which would
require more bond issuance."
So
far, however, vast domestic savings have allowed Japan to comfortably cover
nearly all of its financing needs at home and at record low interest rates.
Abe's
government has reaffirmed its predecessors' goal of bringing the primary
budget, which excludes borrowing and debt service, into balance by 2020/21.
This can only be achieved with substantial spending cuts and tax hikes.
"We
must come up with something new to fix the primary balance by the middle of
this year," Finance Minister Aso said. "It would not be convincing if
only the economy picks up while we leave (fiscal reform) undone."
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