Japan proposes record $990.9 billion budget to bolster economy
TOKYO - Japan unveiled a budget proposal yesterday that, if approved, will push spending to record levels as the government scrambles to battle an deepening recession.
The Finance Ministry's draft budget suggested a spending increase of 6.6 percent to $990.9 billion for the next fiscal year - the biggest-ever figure in an initial proposal.
The world's second-largest economy fell into a recession in the third quarter, and the signs since then point toward more misery ahead. The latest outlook by the Cabinet Office projects Japan's economy to shrink this fiscal year and manage only flat growth the following year.
Under the budget proposal, general spending will rise to $578.9 billion in the fiscal year starting in April, even though tax revenue is projected to fall 13.9 percent to $516.2 billion.
As a result, Japan will see its primary budget deficit jump to more than $145.6 billion from $56 billion this year, and will boost bond issuances by 31.3 percent to cover the revenue shortfall.
The draft budget is scheduled for Cabinet approval on Wednesday and is expected to be submitted to parliament in January.
Prime Minister Taro Aso has responded to the economic crisis by introducing a slew of fiscal stimulus measures, including a $302.3 billion package in October and a $481.5 billion plan earlier this month.
The Cabinet yesterday approved a $53.6 billion supplementary budget for this fiscal year through March to fund some of the stimulus steps. Among Aso's measures are expanded credits for small businesses, lower highway tolls, and a cash payout to every household to spur spending.
Still, it may not be enough to trigger a turnaround for Aso and his Liberal Democratic Party, which looks increasingly likely to lose its decades-long grip on political power.
The embattled prime minister has repeatedly come under fire for a lack of leadership through the economic crisis, as well as a series of verbal gaffes.
His approval rating has plunged in the three months since he took office. It fell to 16.7 percent this month, compared with 38.8 percent last month, Jiji Press reported last week.
The expansion of the budget is likely to derail Tokyo's efforts to slim down toward its goal of balancing the budget by 2011. But Aso has made it clear that this is no time for fiscal discipline.
On Friday, the central bank cut its key interest rate to 0.1 percent, joining the US Federal Reserve in pushing borrowing costs close to zero. And in its gloomiest assessment this year, the Bank of Japan cited the harsh impact of tumbling exports, weakening domestic demand, job losses, and growing credit crunch.
"Under these circumstances economic conditions have been deteriorating and are likely to increase in severity for the immediate future," it said in a statement.
The proposed budget is the first introduced by Aso since he took office in September. It expands a national debt burden that's already the largest in the industrialized world.
Despite the rising debt, the value of the yen has increased. It has climbed 25 percent against the dollar this year as many investors took out loans in Japan to take advantage of the lowest benchmark interest rates among the Group of 10 industrialized nations. They then sold the yen and invested the proceeds in high-yielding assets outside the country.
With receipts dwindling, Aso tried to come up with ideas to find new sources of revenue, only to have them rejected by members in his party.
Liberal Democratic Party has decided not to pursue an increase in the nation's tobacco tax next year. The government owned 50 percent of Japan Tobacco Inc., the world's third-largest publicly traded cigarette maker, as of March 31.
Lawmakers also rejected Aso's pledge to raise the consumption tax from 5 percent in three years, omitting it from its tax reform plan this month.