Japanese Prime Minister Shinzo Abe's cabinet approved on Thursday a $53 billion extra budget for the current fiscal year to fund stimulus steps announced last week aimed at offsetting the blow from a planned increase in the national sales tax. The size of the supplementary budget comes to 5.46 trillion yen ($53.3 billion), following a 13.1 trillion yen extra budget compiled in January to stimulate the economy, according to the Ministry of Finance.
The latest budget will bring government spending for fiscal 2013/14, which ends in March, to about 98.1 trillion yen. That compares with 100.5 trillion yen earmarked the year before, suggesting that Japan's spending remains expansionary. It underlines the need for Abe to strike a balance between boosting near-term growth and reining in a huge public debt.
The focus will now shift to a draft annual budget for the next fiscal year from April, expected to be compiled on December 24. "Our major objective is to achieve both rebuilding public finances and revitalising the economy. OECD and G20 countries are moving in this direction," Finance Minister Taro Aso said. In its basic policy outline for the initial budget, the government vowed on Thursday to do the utmost to keep fresh bond issuance in fiscal 2014/15 below the current year's level.
Abe's government could face stiff resistance against spending cuts, with budget requests from ministries totalling a record 99.3 trillion yen for fiscal 2014/15. The government does not need to issue additional new bonds to fund the latest extra budget. It scrapes together revenue including bigger-than-expected tax receipts in the current year, and non-tax incomes such as by selling a portion of its shares in Nippon Telegraph and Telephone Corp. Last week, the cabinet approved an 18.6 trillion yen stimulus package, including 5.5 trillion yen in government spending, to bolster the economy ahead of the sales tax hike in April.
Tokyo plans to raise the sales tax in April to 8 percent from the current 5 percent, and to 10 percent in October 2015, to pay for ballooning social security costs in a fast-ageing society. To ease the pain of the tax hike for low-income households, Japan's ruling coalition agreed on Thursday to introduce a lower sales tax on daily necessities when the tax is at 10 percent.
The ruling bloc, in their annual tax code revision for fiscal 2014/15, also agreed to raise the light vehicle tax by 50 percent to 10,800 yen a year from April 2015, while cutting the car acquisition tax in April 2014 when the sales tax is raised. As expected, they did not commit to future cuts in Japan's effective corporate tax, among the highest in the industrial world, saying they would continue to consider the matter. The stimulus package includes steps to boost industrial competitiveness, support households, accelerate rebuilding from the March 2011 earthquake and tsunami, and build infrastructure for the 2020 Tokyo Olympics.