Japan Cabinet OKs record 92.4 tril. yen budget for FY 2011+

TOKYO, Dec. 24 Kyodo -
The Cabinet of Prime Minister Naoto Kan on Friday approved a record-high draft
budget of 92.41 trillion yen ($1.11 trillion) for the next fiscal year, driven
by swelling social security costs amid the aging of the population and the need
to fulfill the ruling party's election pledges.
The size of the initial budget for fiscal 2011 starting April was up 0.1
percent from the previous high of 92.30 trillion yen in fiscal 2010, which
could add to concern over the country's fiscal health as the government could
only cover less than half of the expenditures with tax revenues and depended on
debt for the remainder.
''We drafted a budget that can help dispel a sense of stagnation within
Japanese society,'' Kan said in an interview after the draft budget was
approved by the Cabinet, calling on opposition parties to cooperate in passing
the budget.
Cabinet members met in the evening and approved the draft budget, which is to
be deliberated on next year. Kan could face difficulty, though, in securing its
passage given the opposition camp's control of the House of Councillors
following his ruling coalition's defeat in last summer's upper house election.
The budget plan appears at odds with Kan's earlier pledge to prioritize
restoring Japan's fiscal health, the worst among major developed economies.
According to data released by the Finance Ministry, the outstanding balance of
state and local government debt could expand to 184 percent of the nation's
gross domestic product.
The premier said Japan must work harder for fiscal consolidation.
Finance Minister Yoshihiko Noda admitted separately that Japan's fiscal
management remains difficult, underlining an ''abnormal' situation, in which
the government must depend on new debt more than tax revenues to craft a
budget.
Noda repeatedly spoke of the need to seek stable funding sources to ensure
fiscal sustainability, alluding to comprehensive tax reforms that may result in
raising the politically sensitive consumption tax.
The government will cut new government bond issuance below the level of the
previous year, as pledged by the prime minister, to 44,298.0 billion yen worth
from a record 44,303.0 billion yen.
But the nation's overall bond issuance will hit a record-high 169.59 trillion
yen on a rise in refinancing bonds, the ministry said.
Out of the general-account budget, 54.08 trillion yen was earmarked for
financing core policies, with 28.71 trillion yen set aside for social security
outlays, up 5.3 percent from the initial fiscal 2010 budget, reflecting the
aging population and the government's decision to raise monthly child
allowances for some recipients.
The government would reduce spending for international development aid, with
the amount of official development assistance down 7.4 percent to 572.7 billion
yen.
As for outlays related to national defense, the government would spend 4.78
trillion yen, down 0.3 percent, while aiming to secure 185.8 billion yen for
hosting U.S. forces in Japan, down from 188.1 billion yen.
Kan and his Democratic Party of Japan have pledged efforts to spur domestic
growth and employment as the nation's economic recovery has paused on slowing
production and exports.
The budget plan involves spending on small and medium-sized firms to encourage
them to hire more as well as outlays to ensure incomes for domestic farmers
with compensation programs.
Expenditures for public works projects would be sharply reduced, again in line
with a key policy of the DPJ, which shot to power in last year's general
election by beating the long-dominant Liberal Democratic Party.
The fiscal 2011 budget is the first budget that the DPJ-led government has
drafted from scratch.
Also accounting for large shares of the budget are 16.78 trillion yen in grants
to regional governments, down 4.0 percent from fiscal 2010, and 21.55 trillion
yen in interest payments and other debt-servicing costs, up 4.4 percent.
On revenues, the government expects 40.93 trillion yen to come from taxpayers,
up 9.4 percent due mainly to a recovery in corporate earnings yet still at a
low level compared with past records.
The Cabinet last week approved tax reform plans for the next fiscal year,
including a corporate tax cut in order to help companies boost capital spending
and domestic employment. The subsequent revenue shortfalls would be covered by
measures such as de facto tax hikes with the government reducing deductions
from taxable incomes for people with higher incomes.
In response to its growing expenditures, the government has to tap some surplus
funds at state-backed entities and cash reserves in special budget accounts,
which are often called ''buried treasure.''
Noda said, however, such an emergency method is not one that the government can
repeatedly employ, urging efforts to find alternative funding sources.
==Kyodo
2010-12-24 22:39:51


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