Japan approved its biggest-ever budget today, as an improving economy and a sales tax hike made room for more defence spending and the first step towards achieving a balanced budget.
Prime Minister Shinzo Abe’s cabinet rubber-stamped a plan that will see the government spend ¥95.88 trillion ($922 billion) in the year from April 2014, up from ¥92.61 trillion in the previous year.
The figure is the largest in Japan’s history due to changes in accounting rules and a sales tax hike, which will rise from five per cent to eight per cent on April 1.
The lion’s share of the extra revenue is earmarked for spending on snow-balling medical fees and other social welfare costs.
Even so, the projected primary balance deficit — the shortfall between what the government gets and what it spends on everything apart from debt-servicing — is expected to shrink by ¥5.2 trillion to ¥18.0 trillion.
That means Japan’s national debt — already the highest proportionately in the industrialised world — will continue to rise, albeit at a slower pace.
The government’s official policy is that Japan’s primary balance should be in surplus by 2020, although most analysts expect that target to be missed.
In line with defence policies announced last week that are intended to shore up the way Japan protects its remote islands at a time of rising tensions with China, military spending will increase for the second consecutive year.
Overall it will rise 2.8 per cent to ¥4.88 trillion, accounting for 5.1 per cent of the whole budget. The bulk of the increase reflects salary hikes, with just 0.8 per cent set aside for new fighter jets, drones and a new amphibious unit.
Until last year, Japan’s military budget had been shrinking for a decade, in contrast with China’s, which has seen double digit rises most years over the same period.
But that did not stop Beijing lashing out at the plans when they were announced last week, with a spokesman saying they “must cause concern to neighbouring countries in Asia’’.