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Japanese Government Issues 2012 Budget

by Mary Swire,, Hong Kong

28 December 2011

Prime Minister Yoshihiko Noda’s government has approved and submitted a JPY90.3 trillion (USD1.16 trillion) budget for the next fiscal year, beginning on April 1, 2012, which points out, in particular, the difficulties the government has experienced in restricting its general spending and the issuance of further public debt.

While the JPY90.3 trillion in general public spending in the new budget is said to be a reduction on the JY92.4 trillion budget for the current fiscal year, expenditure during the coming year of almost JPY3.8 trillion for reconstruction in the earthquake and tsunami disaster area has been allocated to a separate account.

In addition, a substantial portion of the country’s annual pension benefits are to be funded by issuing JPY2.6 trillion in "special bonds" that are meant to be covered by tax increases in the future, and are not counted as spending next year.

It is noticeable that budgeted social security spending so reduced will still be nearly JPY26.4 trillion, and represents 29.2% of total general account expenditure; and debt servicing costs at almost JPY22 trillion will take up a further 24.3%.

In what is said to be a further indication of how Japan’s fiscal position is worsening, the funding of the budget by tax revenues of JPY42.35 trillion will remain less than the government’s need to issue further bonds of JPY44.24 trillion. Such bond issuance will represent 49% of the budget’s total funding requirements and will further increase the level of public debt, which has already reached almost double the country’s gross domestic product.

It is planned that the proposed budget will be presented to the country’s parliament early in 2012. By that time, however, the government can also be expected to have already provided details of its plan for a doubling of Japan’s 5% consumption tax, in stages, probably from October 2013.

That plan is due to be presented before the end of this year, and has, as its intention, the funding of Japan’s increasing social security costs and also the halving of its primary fiscal deficit by 2015.

However, given the lack of agreement in the ruling party Democratic Party of Japan on how to reduce the government’s non-essential spending, as shown by the 2012-13 budgetary proposals, and whether to continue the plans to raise the politically-difficult consumption tax, together with the implacable opposition of the other parliamentary parties, progress may be slow on all fronts before the elections due in 2013.

TAGS: tax | economics | sales tax | fiscal policy | budget | social security | revenue statistics | Japan

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