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Japan plans record $944bn budget, marking 10-year spending spree

  • December 18, 2021
  • , Nikkei Asia , 6:41 a.m.
  • English Press

YOHEI HIROSE, KOSUKE TAKAMI and KANA BABA, Nikkei staff writers

 

TOKYO — Japan is set to propose a 107 trillion yen ($944 billion) budget for fiscal 2022, with the pandemic response and rising social security costs again driving the total to a record high.

 

The figure would mark the 10th straight year of record spending. New bond issuances will decline for the first time in two years thanks to a rise in tax receipts.

 

The budget will be submitted to parliament in January after approval by the cabinet on Dec. 24.

 

Pandemic-related expenses will account for a big portion, totaling 5 trillion yen. But strategic spending on growth areas will be limited, suggesting the government has been unable to chart a path toward sustainable growth or fiscal consolidation.

 

Japan has repeatedly passed jumbo-size supplementary budgets since the start of the pandemic to underpin the economy. For fiscal 2021, total spending from the initial and supplementary budgets has reached 142.5 trillion yen.

 

The Ministry of Finance has used extra budgets to handle temporary spending on controlling infections and stimulus measures while limiting annual budgets to recurring expenses. Yet that has not been able to limit the increase in the annual budget.

 

The aging population alone will boost social security spending by 660 billion yen. Next year, the oldest of the baby boomers — born in 1947 — will turn 75, an age from which medical spending tends to go up. That is a substantial increase from the initial estimate of 480 billion yen.

 

The defense budget will grow to a record 5.4 trillion, reflecting security concerns over North Korea and a possible Chinese advance into Taiwan.

 

Tax revenue is projected to reach about 65 trillion yen, rivaling a record 63.8 trillion estimated for fiscal 2021. Corporate activity, which crawled to a halt during the pandemic, will resume, boosting earnings and tax revenue, the government projects.

 

The Cabinet Office in July forecast the real economy to grow 3.7% in fiscal 2021, bouncing back from a 4.6% contraction the year earlier, and growth continuing at 2.2% in fiscal 2022. But Japan is not on a continuous growth path.

 

In the baseline scenario in which the potential growth rate remains at the current level, economic growth is projected to drop below 1% through fiscal 2030.

 

New government bond offerings had remained below 40 trillion yen since fiscal 2014, but the amount ticked up to 43 trillion yen in the fiscal 2021 initial budget, which factored in an anticipated drop in tax receipts.

 

The government is likely to compile an extra budget at some point during fiscal 2022. The size of an extra budget generally determines how rapidly Japan’s finances deteriorate.

 

In fiscal 2020, Japan compiled three economic packages, driving up total spending for that year to 175 trillion yen, far above the 102 trillion yen earmarked in the initial budget.

 

Uncertainty persists for the Japanese economy, including the new contagious omicron variant, making it hard to make an accurate projection on economic growth and the debt level.

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