Photographer: Tomohiro Ohsumi / Bloomberg
Photographer: Tomohiro Ohsumi / Bloomberg
The Japanese cabinet approved a record budget of more than $ 1 trillion next fiscal year, adding to the developed world’s heaviest indebtedness as Prime Minister Yoshihide Suga struggles to fight the coronavirus and support an economic recovery.
Japan’s 2021 budget calls for 106.6 trillion yen in total spending over the 12 months beginning in April, a 3.8% increase from last year’s original budget, the Treasury Department confirmed Monday. Actual spending could rise much higher given the likelihood of additional budgets, three of which have been set up this year amid the pandemic, adding 73 trillion yen to total spending.
Gap widens
Japan’s spending is jumping up as the corona virus is plaguing the economy
Source: Ministry of Finance
“We had to strike a balance between preventing further infections, economic recovery and fiscal consolidation,” said Finance Minister Taro Aso. “That balancing act was the hardest part of drawing up the budget.”
The pandemic has forced Japan to increase its debt mountain, with a record new debt issue this year. Even before last week’s third additional budget, the International Monetary Fund saw government debt reach 266% of gross domestic product this year with a budget deficit of 14.2% of GDP.
Virus deficiency
Japan’s debt burden is under pandemic stress
Sources: OECD, Bloomberg
The Suga government announced more than $ 700 billion in stimulus this month, funded in part from next year’s budget. The package aims to contain the virus while helping the economy transition to a post-Covid world.
Japan’s Suga doubles its travel stakes in a $ 700 billion package
The number of daily virus cases in Japan has risen twice over the past few days to over 3,000. Suga has already been forced to file a temporary suspension on a travel grant program he promoted, depriving him of an efficient way to stimulate an economy that some economists believe is in danger of slipping back into recession.
On the side of monetary policy, the Bank of Japan maintained its ultra-easy stance on Friday and also extended its coronavirus response program by six months. The bank also surprised the market by promising a policy review without a total overhaul, giving economists and investors three months to speculate on possible changes.
Here’s the breakdown of budget spending for next year:
- 66.9 trillion yen in general expenses, including:
- About 35.8 trillion yen for Social Security
- 5 trillion yen for a coronavirus response reserve fund
- Debt payment of 23.8 trillion yen
- 16 trillion yen in transfers to regional and local governments.
In terms of revenues, bond issuance is expected to rise to its highest level since the global financial crisis. Debt income will increase to 40.9% of total income, from 31.7% in 2020. The Treasury Department plans to offer a total of 236 trillion yen in government bonds next fiscal year, most of which will be refinancing of bonds.
Here’s the breakdown of projected income for fiscal 2021:
- 57.4 trillion yen in tax revenue.
- 43.6 trillion yen in income from the issuance of new bonds
- 5.6 trillion yen from other sources.
(Adds Treasury Secretary comment, new chart, IMF budget deficit forecast.)