Japan Approves Record $1 Trillion Budget for Next Year

Japan’s cabinet approved a record budget next fiscal year that tops $1 trillion and adds to the developed world’s heaviest debt burden as Prime Minister Yoshihide Suga struggles to fight the coronavirus and bolster an economic recovery.

Japan’s fiscal 2021 budget calls for 106.6 trillion yen in overall spending during the 12 months starting in April, a 3.8% increase from last year’s initial budget, the finance ministry confirmed Monday. Actual spending could rise much higher, given the likelihood of extra budgets, three of which were drafted this year amid the pandemic, adding 73 trillion yen to total spending.

Japan Approves Record $1 Trillion Budget for Next Year

“We’ve had to balance preventing further infections, economic recovery and fiscal consolidation,” Finance Minister Taro Aso said. “That balancing act was the most difficult part of compiling the budget.”

The pandemic has forced Japan to add to its mountain of public debt, with new debt issuance hitting a record this year. Even before last week’s third extra budget, the International Monetary Fund saw public debt hitting 266% of gross domestic product this year with a budget deficit at 14.2% of GDP.

Japan Approves Record $1 Trillion Budget for Next Year

The Suga administration this month announced over $700 billion in stimulus, partly funded by next year’s budget. The package aims to contain the virus while helping the economy transition into a post-Covid world.

Japan’s daily virus cases have twice risen above 3,000 in recent days. Suga has already been forced to declare a temporary suspension to a travel subsidy program he’d promoted, robbing him of an efficient way of boosting an economy that some economists see under threat of falling back into a recession.

On the monetary policy side, the Bank of Japan maintained its ultra-easy stance Friday, also extending its coronavirus response program by six months. The bank also surprised the market by promising a policy review without a total overhaul, leaving economists and investors with three months to speculate about possible changes.

Here’s the breakdown of next year’s budget expenditures:

  • 66.9 trillion yen in general spending, including:
    • Around 35.8 trillion yen for social security
    • 5 trillion yen for a coronavirus response reserve fund
  • Debt servicing of 23.8 trillion yen
  • 16 trillion yen in transfers to regional and local governments.

On the income side, bond issuance is planned to rise to its highest since the global financial crisis. Income derived from debt will rise to 40.9% of total revenue, compared with 31.7% in 2020. The Finance Ministry plans to offer a total of 236 trillion yen worth of government bonds next fiscal year, the majority of which will be refinancing bonds.

Here’s the breakdown of fiscal 2021’s projected income:

  • 57.4 trillion yen in tax revenue.
  • 43.6 trillion yen in revenue from new bond issuance
  • 5.6 trillion yen from other sources.

©2020 Bloomberg L.P.

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