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Japan's government unveiled a record budget for next fiscal year in a bid to boost domestic demand through increased household spending rather than huge outlays on big construction projects.
Friday, Japanese Prime Minister Yukio Hatoyama announced a record budget of 92.3 trillion yen or $1 trillion for the fiscal year that starts April 1, 2010. This is the first budget since Hatoyama's Democratic Party of Japan gained power in the August election. The initial budget for this fiscal year was 88.55 trillion yen.
The government also plans to issue a record 44.3 trillion yen worth of new government bonds next fiscal year to cover a revenue shortfall. This is 33.1% above the level planned in the initial budget for the previous fiscal year. Thus, Hatoyama kept his promise of maintaining Japan's fresh debt issuance around 44 trillion yen. Japan's public debt is the largest among industrialized nations and is nearing 200% of gross domestic product, raising concerns on the country's ratings.
Tax revenues are estimated at 37.39 trillion yen for next fiscal year compared to 46.10 trillion yen in this year's initial budget. This is the first time since the World War II that the tax revenue estimate is below the debt borrowing amount for an initial budget. Additionally, non-tax receipts are estimated at a record 10.6 trillion yen, which will be mainly raised from the nation's cash reserves. Again a record for an initial budget, general expenditures for fiscal 2010 is estimated at 53.45 trillion yen, up from 51.73 trillion yen in the previous initial budget.
The latest budget mirrors DPJ's campaign pledge to channel spending to households from big public works projects. Specifically, Hatoyama promised to shift spending "from concrete to people". The budget includes allowances for raising children and free high school education.
Government spending on social welfare is set to rise 9.8% to 27.27 trillion next fiscal, the first time it is more than half of the total policy spending. On the other hand, spending on public works was reduced by a record 18.3% to 5.8 trillion yen.
To meet the economic needs in rural areas, local governments are estimated to receive 17.48 trillion yen in aid next fiscal year, up 5.5% estimated for previous fiscal. Debt servicing costs are expected at 20.65 trillion yen, marking an increase of 2% from the initial budget for the year before.
However, economists are worried about excessive spending as the nation's public deficit balloons. Hatoyama had to abandon his pledge of cutting gasoline taxes. Also, Japan is set to hold an Upper House election next year.
Meanwhile, the Prime Minister's popularity rating fell below 50% in a recent poll as concerns grew over his ability to take key decisions on the economy as it tries to emerge from a severe recession. On Thursday, the administration marked its 100th day in power. Adding to Hatoyama's woes, two of his former aides were indicted in a political fund scandal.
Further, the government said today that it expects the economy to grow a 1.4% next fiscal year after contracting 2.6% in the current fiscal, which ends in March 2010. The economy would be growing for the first time in three years. The Japanese economy grew 0.3% in the third quarter.
The budget proposal is set to be presented in the Japanese parliament, known as Diet, for approval early next year.
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