Japan’s $ 940 trillion budget boost to boost fiscal reform in the back seat of Reuters

Author: Tetsushi Kajimoto

TOKYO (Reuters) – The Japanese cabinet on Friday approved a record annual budget of $ 940 billion for the tenth year in a row, giving priority to the response to COVID-19 and the prime minister’s goal of distributing growth and wealth.

The $ 107.6 trillion ($ 941.550 billion) budget for the year, which will begin in April 2022, is Japan’s largest initial spending plan, emphasizing the priority of reviving the economy caused by the pandemic rather than returning to long-term fiscal health.

However, when asked if the high cost of dealing with the COVID-19 pandemic could force the government to change its primary balance target, Finance Minister Shunichi Suzuki said: “I don’t think so at the moment.”

Suzuki reiterated his commitment to the goal, saying it was important to maintain efforts to improve public finances as a basis for Japan’s credibility.

Prime Minister Fumio Kishida’s first budget, which is due to be approved by parliament in late March, comes just days after the body approved a record trillion of 36 trillion yen to support the revival of COVID-19.

Higher spending means that fiscal discipline is being released to keep the borrowing costs low among Japanese officials who are counting on the ultra-loose monetary policy of the Bank of Japan, analysts said.

“Politicians are showing no signs of trying to pay off government debt,” said Yasunari Ueno, head of market economics at Mizuho Securities. “Lack of fiscal discipline is the biggest side effect of the BOJ’s massive money laundering.”

The budget includes 5 trillion yen for COVID-19’s emergency costs, a record 5.37 trillion in defense spending, the highest welfare cost ever to manage 36.3 trillion yen and 24.3 trillion yen in debt management.

Japan’s public debt, the world’s third-largest economy, is more than double its $ 5 trillion economy, the heaviest of the industrialized countries.

Kishida is committed to improving public finances over the long term and the budget envisages a new debt of 36.9 trillion yen next year, less than the 43.6 trillion in this year’s initial plan.

Lower debt will be replaced by higher tax revenue, rising for the first time in two years, to a record 65.2 trillion yen as COVID-19 facilitates economic activity.

The government expects real economic growth of 3.2% next year, up from 2.2% in the previous year. Budgets are the basis of the budget plan.

But with debt still at 34.3% of the budget, it will be difficult to get a surplus of the first budget for 2025/26, as the government wants.

The budget deficit, which excludes the primary deficit, bond sales and new debt services, will be 13 trillion yen next year, higher than the estimated 20 trillion this year, but still outside the government’s target.

($ 1 = $ 114.2800)