Japan’s record $940 billion budget to help recovery as fiscal reform gets in the backseat According to Reuters

© Reuters. FILE PHOTO: A view of the skyline and buildings in the Shinjuku district during sunset in Tokyo, Japan June 20, 2021. REUTERS / Pawel Kopczynski

By Tetsushi Kajimoto

TOKYO (Reuters) – Japanese Prime Minister Fumio Kishida’s cabinet on Friday approved a record $940 billion budget for the next financial year as COVID-19 responses fall above the prime minister’s goal of achieve growth and wealth distribution under his new capitalist agenda.

The 107.6 trillion yen ($941.55 billion) budget for the 2022/23 fiscal year, which starts in April, is Japan’s largest-ever initial spending plan, highlighting The country’s priority is to revive the pandemic-stricken economy rather than restore long-term fiscal health.

It marked the 10th year in a row Japan’s annual budget hit a record. The budget must be approved by parliament by the end of the current financial year in March.

The first annual budget under Kishida comes days after parliament passed a record 36 trillion yen in additional stimulus spending for this fiscal year to aid the recovery from COVID-19.

Greater spending means fiscal discipline is loosening among Japanese policymakers, who are relying on the Bank of Japan’s super-loose monetary policy to keep costs down. loans at low rates.

“Politicians show no sign of making an effort to repay the government debt,” noted Yasunari Ueno, chief market economist at Mizuho Securities. “The lack of fiscal discipline is the biggest side effect of the BOJ’s massive monetary easing.”

The budget includes 5 trillion yen set aside to cover emergency costs of COVID-19, a record defense spending of 5.37 trillion yen, the largest welfare expense ever. 36.3 trillion yen and 24.3 trillion yen for debt repayment.

Public debt in Japan, the world’s third-largest economy, is more than twice the size of the $5 trillion economy, the heaviest among industrialized countries.

Kishida has pledged to improve Japan’s public finances in the long term, and the new loan projected budget next fiscal year is 36.9 trillion yen, less than the 43.6 trillion yen expected. Initially for this year.

Lower borrowing will be replaced by higher tax revenue, which rose to a record 65.2 trillion yen for the first time in two years as COVID-19 restrictions on economic activity were eased.

The government estimates real economic growth at 3.2% in fiscal year 2022/23, up from the previous estimate of 2.2%, which forms the basis for the budget plan.

But with debt still accounting for 34.3% of the budget, it will still be difficult to achieve a primary budget surplus in fiscal year 2025/26 as the government’s target.

The primary budget deficit – excluding new bond sales and debt payments – hit 13 trillion yen in fiscal year 2022/23, up from 20 trillion yen this year but still far from target. government spending.

($1 = 114.2800 yen)

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