TOKYO, Dec 20: Japan’s cabinet approved on Saturday a slightly higher budget for the next fiscal year, with swelling debt and the cost of caring for an ageing population making it impossible to cut spending as it would have liked.
The draft budget for fiscal 2004/05, starting next April, totalled 82.11 trillion yen ($763 billion), up 0.4 per cent from this year’s 81.79 trillion yen, official papers showed.
General spending is set to rise to 47.63 trillion yen, up 0.1 per cent from this year, with the increase due mainly to mandatory costs such as social security and debt servicing.
Finance Minister Sadakazu Tanigaki acknowledged more work was needed to restore the country’s tattered finances.
Fiscal conditions are still very weak, so we can’t boast, he told a news conference after other members of cabinet endorsed his ministry’s proposals.
But we did manage to cut back if it weren’t for the mandatory costs, so I’d say we made some progress toward achieving a positive primary balance.
The government has vowed to restore the country’s primary balance — revenue excluding bond issuance minus spending excluding debt servicing — to neutral in the next decade.
But a weak economy has led to a decline in tax revenue, estimated at 41.75 trillion yen in fiscal 2004/05, down from this year’s planned 41.79 trillion yen.
To help pay for the rest of the budget, the government plans fresh issues of Japanese government bonds (JGBs) amounting to 36.59 trillion yen, up 0.4 per cent from the current year.
As a result, Japan will rely on bonds for 44.6 per cent of its overall budget in fiscal 2004/05, the same level as this year.
Repeated fiscal packages over the past decade aimed at reviving the economy have left Japan with the biggest public-sector debt in the industrialised world, at around 140 per cent of gross domestic product (GDP).
Tanigaki and other finance ministry officials were keen to emphasise their efforts to hold down spending and that the rise in the budget was mostly due to unavoidable expenditure.
In addition to a 4.6 per cent rise in debt-servicing costs to 17.57 trillion yen, the government must boost spending on social welfare by 4.2 per cent to care for the rising number of old people.
Its efforts to reduce spending included a 5.2 per cent cut in grants to local governments to 16.5 trillion yen and a 4.8 per cent cut in the overseas aid budget to 816.2 billion yen.
But many analysts said the government should have tried harder to cut spending or found ways to increase revenue, by raising the sales tax, for example.
Japan is still in quite a murky fiscal state and this budget does little to improve that. It appears that they’re again delaying the crucial decisions, said Tatsuya Torikoshi, a senior economist at Daiwa Institute of Research.
Japan is also overhauling its pension system, which is creaking under the strain of the ageing population, but policy-makers have been wary of anything too radical for fear of upsetting a nascent economic recovery.
A supplementary budget including money to help rebuild Iraq will probably boost the budget figures for the current fiscal year, although officials have said they would not issue more bonds for that.
The draft budget will undergo some fine-tuning over the next week as it is transformed into a bill, which will then be sent to parliament in January.—Reuters