Japan’s record $ 940 billion budget to help recovery as tax reform lags

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A view of the skyline and buildings of the Shinjuku district at sunset in Tokyo, Japan on June 20, 2021. REUTERS / Pawel Kopczynski

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  • Fiscal 2022 budget hits record 10 year spending
  • PM Kishida prioritizes recovery from COVID-19 to tax reform
  • New bond issues down as record tax revenues are estimated
  • Military spending, social assistance and debt service weigh on public finances

TOKYO, Dec.24 (Reuters) – Japanese Prime Minister Fumio Kishida’s office on Friday approved a record $ 940 billion budget for the next fiscal year, with COVID-19 responses adding to Prime Minister’s target of ” achieve growth and the distribution of wealth within the framework of its new program of capitalism.

The 107.6 trillion yen ($ 941.55 billion) budget for fiscal year 2022/23, which begins in April, is Japan’s largest initial spending plan, underscoring its priority to revive the affected economy. pandemic rather than restoring long-term fiscal health.

This is the tenth consecutive year that Japan’s annual budget has hit a record. The budget must be approved by parliament before the end of the current fiscal year in March.

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

Higher spending has meant loosening fiscal discipline among Japanese policymakers who rely on the Bank of Japan’s ultra-accommodative monetary policy to keep borrowing costs low.

“Politicians are showing no signs of making efforts to pay down public debt,” noted Yasunari Ueno, chief market economist at Mizuho Securities. “Lack of fiscal discipline is the biggest side effect of the BOJ’s massive monetary easing.”

The budget includes 5,000 billion yen set aside to cover the emergency costs of COVID-19, a record defense expenditure of 5.37 trillion yen, the highest social cost on record of 36.3 trillion yen and 24.3 trillion yen for debt service.

Japan’s public debt, the world’s third-largest economy, is more than double its $ 5,000 billion economy, the heaviest of the industrialized countries.

Kishida is committed to improving Japan’s public finances in the long term, and the budget forecasts new borrowing for next year of 36.9 trillion yen, less than the 43.6 trillion yen originally forecast for this year.

The drop in borrowing will be replaced by higher tax revenues, which are expected to rise for the first time in two years to a record 65.2 trillion yen as COVID-19 restrictions on economic activity are relaxed.

The government estimates real economic growth of 3.2% for the 2022/23 fiscal year, compared to an earlier estimate of 2.2% which forms the basis of the budget plan.

But with debt still accounting for 34.3% of the budget, it will remain difficult to achieve a primary budget surplus by FY 2025/26 as the government aims to do.

The primary budget deficit – excluding new bond sales and debt service – is estimated at 13 trillion yen in fiscal year 2022/23, an improvement from the 20 trillion yen observed this year but again. far from the government’s goal.

($ 1 = 114.2800 yen)

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Editing by Catherine Evans and Jacqueline Wong

Our Standards: Thomson Reuters Trust Principles.

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