(Sankei: January 15, 2015 – p. 1)
By Mayumi Ogawa
The government approved a record budget proposal totaling 96.342 trillion yen for fiscal 2015 at a Jan. 14 cabinet meeting. Tax revenue is expected to climb to 54.525 trillion yen, the largest-ever in 24 years, driven by the introduction of an 8% sales tax last April and a rise in corporate tax revenue. Meanwhile, new government bond issuances will be curbed by over 4 trillion yen from fiscal 2014 to 36.863 trillion yen, falling below the 40 trillion yen threshold for the first time in six years.
Higher tax revenues and payments from the Bank of Japan are estimated to lift revenue to 59.479 trillion yen. Policy spending will come to 72.8912 trillion yen, with the primary balance deficit at 13.4 trillion yen. The government is expected to achieve its goal of halving the debt-to-gross domestic product ratio from fiscal 2010 in the next fiscal year.
Social welfare spending grows about 1 trillion yen from fiscal 2014 to a record 31.5297 trillion yen due to the rapid pace of aging. Defense expenses mark the third consecutive year of growth, at 4.9801 trillion yen. A 1 trillion yen fund will be set up for local governments to tap at their discretion to give momentum to Prime Minister Shinzo Abe’s initiative to rejuvenate local economies.
The fiscal 2015 budget proposal is ambitious with a particular focus on a vision for growth. It is aimed at breathing life into both the domestic and local economies and accelerating the government’s growth strategy. It is also designed to achieve the goal of halving the primary deficit, though the shelving of the planned sales tax hike is expected to chip away at revenue sources.
“The budget is compiled in a way to achieve both economic growth and fiscal integrity,” said Abe in a press conference held after the cabinet approval of the budget. “I want to deliver the fruits of economic recovery across the nation.”
The allocation of more money to local governments highlights Abe’s initiative to stimulate local economies. Besides the creation of a 1 trillion yen fund, over 700 billion yen will be earmarked to promote collaborations between local businesses and universities and to support those who go into farming for the first time. Coupled with financial support for child-care and social welfare programs, over 3 trillion yen will be injected to rejuvenate local economies by the central and local governments together.
The fiscal 2015 budget calls for spending reductions in some areas, but allocates more money in areas deemed necessary for growth. To propel the economy that has stalled due to the sales tax hike and achieve stable growth, “the revitalization of local economies is one such area that requires money,” said a senior official at the budget bureau in the Ministry of Finance.
While reining in spending in education and agriculture, the government increases spending on R&D for artificial intelligence and robots as part of efforts to help Japanese companies and research institutes enhance their competitiveness. The move is aimed at improving the nation’s economic productivity and accelerating its growth.
The government increases defense spending by 100 billion yen from fiscal 2014 to bolster its defense capabilities for outlying islands and modernize military equipment with an eye on Japan-U.S. defense cooperation. It also endorsed budget requests for opening new embassies and efforts to increase Japan’s say in the international community over the “comfort women” issue.
But the government still lags behind in efforts to cut spending. As of last summer, revenue was projected to surpass the level of halving the primary deficit by about 750 billion yen. But the budget proposal saw an increase of 1 trillion yen in social welfare spending, as expenditures associated with the natural growth in the elderly population could not be contained.
The shelving of the planned sales tax hike became another blow. “If tax revenue had not increased, the goal of halving the primary deficit could not have been achieved,” said a finance ministry official. An increase in tax revenue alone was not sufficient to cover spending that arose from the natural growth in the aging population, leaving the challenge of improving the efficacy of the budget unaddressed.
Japan’s debts have already surpassed 1,000 trillion yen, which makes it more urgent for the government to achieve fiscal integrity and growth. It faces the daunting task of slashing wasteful spending, which is indispensable for securing budgets needed for growth. (Slightly abridged)