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Japan approves record budget amid rising social security costs

Bloomberg Tokyo | Updated on December 20, 2019 Published on December 20, 2019

Japan Prime Minister Shinzo Abe (file photo)   -  REUTERS

Japan cabinet approved a record budget for next fiscal year, with social security costs pushing up the bill for a government already struggling to rein in the developed world’s biggest public debt load.

Spending by the Japanese government will increase by about 1.2% to 102.7 trillion yen ($939 billion) in the year starting April, the Finance Ministry confirmed on Friday. Outlays on social security will account for about 57% of spending outside of debt servicing and transfers to regional governments.

While Prime Minister Shinzo Abe’s administration is emphasizing that another planned reduction in bond issuance shows the government’s commitment to putting Japan’s finances in order, economists don’t see any major change in the status quo.

Speaking after the release of the budget, Finance Minister Taro Aso said Japan is still committed to balancing its books by fiscal 2025 and flagged the eighth straight reduction in planned new bond issuance under Abe. He said the government would continue with reforms aimed at controlling spending, though he hinted that not everything was under his control. “The real world is about the economy. Unless the economy grows, we can’t hit various goals,” Aso said.

In the face of public debt that exceeds 200% of gross domestic product, Abe’s administration has been narrowing Japan’s budget deficit and trimming its issuance of new bonds to fund spending. But rising costs for health care and pensions in a rapidly ageing society are making it hard to make progress in chipping away at the debt pile.

In the short-term, a stimulus package unveiled this month to boost flagging growth also complicates the effort. Longer-term, a hike in the sales tax in October is already bringing in more money, though Abe also has earmarked a portion of the extra revenue to make pre-school education free, adding to spending.

“There has not been a lot of change to overall spending, but the stimulus package adds to the bloat,” said Harumi Taguchi, Tokyo-based principal economist at IHS Markit. Some economists also cast doubt on whether bond issuance was the right yardstick of progress for righting the nation’s finances.

“The focus seems to be on new bond issuance. It should not be that way,” said Koya Miyamae, senior economist at SMBC Nikko Securities Inc. “The government has to tackle the spending and not enough effort has been made on that front.”

Japan’s fiscal deficit is projected to fall to 2.9% against GDP in 2020, compared with 3.4% in 2019, according to a finance ministry document issued with the budget. But the figure is reliant on economic growth and tax receipts matching up with forecasts some economists say are optimistic.

Published on December 20, 2019
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