Japan government approves $1.16 trillion budget for 2012-13

Japan's government approved a $1.16 trillion draft budget on Saturday for the fiscal year from next April, relying on accounting sleights of hand - including as-yet unapproved tax hikes - to meet its borrowing and spending limits as it struggles to find the political will to shore up its finances.
New borrowing from the market was held to this year's 44.2 trillion yen ($565 billion) as pledged, but only by excluding 2.6 trillion yen in "special purpose bonds" that will be taken up by Japan's public pension fund and repaid by future tax increases.
The fractious ruling party, however, has yet to reach a consensus on raising the politically unpopular sales tax, as prescribed by economists and policymakers to rein in a debt that is twice the size of the $5 trillion economy - the worst among industrialised nations.
General spending was also trimmed for the first time in six years, but only after separating out spending on reconstruction from the March earthquake and tsunami into a different account. Analysts see the overall budget as expansionary compared with other industrial nations.
The borrowing cap also will not keep the government's huge debt pile from growing, although it has the luxury of being able to finance nearly all of its fiscal deficit at home and has so far avoided the kind of funding strains plaguing the eurozone.
Highlighting Japan's runaway debt, tax revenue is estimated at 42.3 trillion yen, little changed from the current fiscal year and below new bond issuance for the fourth year in a row, making up less than half the general-account budget.
Within the 90.3 trillion yen budget, general spending excluding debt servicing was 68.4 trillion yen, below the government's self-imposed cap at this year's 71 trillion yen, with the special-purpose bond issuance also serving to put some public pension expenses outside the general account.
Without the 2.6 trillion yen in special-purpose bonds, which do not count as issuance to the market, the government would have missed its goal to keep new bond issuance at this year's levels.
"Rather than patching up numbers to ostensibly meet targets, what's more important is for the government to show exactly how it can maintain fiscal discipline in the medium term," said Takahide Kiuchi, chief economist at Nomura Securities.
"The financial markets will react negatively if the debate on sales tax hikes hits a snag, preventing the government from proceeding with fiscal reform."
Japan aims to bring the primary budget balance, which excludes borrowing and debt service, into the black by 2020/21.