Japan Approves Record Budget

24 Dec

TOKYO: Japan's centre-left government on Friday approved a record 1.1-trillion-dollar budget for next fiscal year that aims to boost the flagging economy but adds to a mountain of public debt.

Japanese Prime Minister Naoto Kan's cabinet backed the 92.41 trillion yen draft budget for fiscal 2011 which starts on April 1.

To finance the massive outlays, Japan aims to issue fresh bonds worth 44.3 trillion yen — meaning that for the second year in a row new debt will be bigger than tax revenue, projected to raise just short of 41 trillion yen.

“I think it is not a normal picture,” said Banri Kaieda, minister in charge of economic and fiscal policy, commenting on the state of public finances. “We must correct it as soon as possible.”

Japan's public debt is already estimated at about 200 per cent of gross domestic product, the highest level among industrialised nations.

The new budget is slightly larger than the initial budget for fiscal 2010, which stood at 92.30 trillion yen.

It will finance some of the spending pledges made by Kan's Democratic Party of Japan (DPJ) — which ended more than half a century of near-continuous conservative rule last year — such as cash for families with young children.

Finance Minister Yoshihiko Noda defended the draft, which includes jobs and growth programmes to sustain the ailing Asian economic giant, which expects growth to slow to 1.5 per cent in 2011 from 3.1 per cent in 2010.

“We were able to draft the budget… while walking a fine line to achieve both improvement of fiscal health and economic growth,” Noda said.

The Japanese economy — which lost the global number two spot to China this year — has been battered by chronic deflation, a high yen that hurts exports, weak domestic demand and feeble consumer confidence.

In the longer run, it faces the demographic timebomb of a greying and shrinking population, which will leave fewer workers supporting more retirees, and a declining domestic consumer market.

Noda claimed the government had met its promise of fiscal discipline, including capping new bond issuance at this year's 44.3 trillion yen.

But the draft runs contrary to earlier pledges by Kan, who came to office in June as the DPJ's second premier, promising to slash spending and work towards cutting the massive debt, analysts said.

As well as the new bond issues, the ruling party will have to rely on more than seven trillion yen of non-tax income such as past reserves for the new budget, further damaging Japan's fiscal discipline, they said.

Japan's tarnished fiscal image had not improved, said Takahira Ogawa, director of sovereign ratings at Standard & Poor's Ratings Services, who criticised the 44.3-trillion-yen bond cap promise as “meaningless”.

“Japan should realise the 44.3 trillion figure is a historically high level of issuance and it's fiscally abnormal,” Ogawa told Dow Jones Newswires.

Citigroup Global Markets Japan strategist Eiji Dohke told Dow Jones Newswires that “the risk of a downgrade of Japanese government bonds would increase” as long as the DPJ stays in power.

Kan could face difficulty passing the budget, with one of the legislature's chambers controlled by opposition parties trying to knock him out of power, local media said.

-AFP/wk

Channel News Asia

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