FACTBOX-Japan’s budget a tough balancing act

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TOKYO, Dec 24 (BestGrowthStock) – Japan’s government on Friday
approved a record 92.4 trillion yen ($1.11 trillion) draft budget
for the year from next April that underscored its struggle to
balance the needs to cap borrowing and to support the fragile
economy.

The government had to dip yet again into savings to stick to
its borrowing cap as tax revenues are unlikely to grow enough to
make ends meet.

The budget, the first drafted from scratch by the Democratic
Party-led government, is hardly reassuring for the economy but
still calls into question its ability to rein in the government’s
huge debt in coming years.

Following are details of key budget items for 2011/12 and how
the government managed to fund them.

WELFARE SPENDING: 28.7 TRLN YEN

The government plans to spend a record 28.7 trillion yen on
welfare, up 5.3 percent from the previous year due to the ageing
population and its pledge to pay allowances to families with
children as a step to counter falling birthrates.

As pension payments steadily increase, the government needed
to come up with emergency funding of 2.5 trillion yen to continue
shouldering 50 percent of the payments and dipped into reserves
in special accounts, which it calls “non-tax revenues”.

But the reserves become applicable only if the government is
able to pass related bills in the parliament next year and this
may prove tough as opposition parties are likely to try to block
their passage.

The savings in special accounts are also drying up, putting
more pressure on the government to seek a hike in the 5 percent
consumption tax as the society ages, but it fears proposing such
a rise would alienate voters.

PAYOUTS TO FAMILIES WITH CHILDREN: Y2.2 TRLN

The government has decided to raise payouts to families with
children younger than three years old to 20,000 yen a month from
13,000 yen, resulting in an additional cost of 250 billion yen.

To accommodate the change, it plans to scale back deductions
from taxable income and tax deductions for dependants.

PUBLIC WORKS: Y4.9 TRLN

The government plans to cut spending on bridges, roads and
infrastructure by 13.8 percent to 4.9 trillion yen, smaller than
a record 18.3 percent reduction the previous year.

The 4.9 trillion yen spending is about half of the peak in
1997/98, indicating a continued shift in fiscal policy away from
over-reliance on large-scale public works to spur growth.

FARM SUBSIDIES: Y600 BLN

The government will boost subsidies for farmers to strengthen
the sector’s competitiveness, as it eyes joining the U.S.-led
Trans-Pacific Partnership (TPP) free trade initiative, a plan
that has angered politically powerful farmers.

NON-TAX REVENUE

The government scraped together a total of 7.2 trillion yen
in non-tax revenue, down from a record 10.6 trillion yen in
2010/11 with the bulk coming from special accounts that manage
foreign reserves and the fiscal investment and loan programme
that finances public projects.

In a sign the government won’t be able to depend on these
non-tax reserves much longer, it needed to tap 231 billion yen in
an anticipated surplus from foreign reserves in the next fiscal
year, on top of all of the current surplus of 2.7 trillion yen.

The surplus from the fiscal investment and loan account, in
addition, is seen declining steadily in coming years from 1
trillion yen in 2010/11.

DEBT SERVICING COSTS

Interest payments and retiring debt would cost 21.5 trillion
yen in the next fiscal year, or 23.3 percent of the overall
budget, a 4.4 percent increase from the previous year.

Japanese yields are low when compared with the United States
and Europe, but they have been rising recently and this could
affect next fiscal year’s debt servicing costs, according to
Finance Minister Yoshihiko Noda.
($1=82.96 Yen)
(Reporting by Rie Ishiguro; Editing by Edmund Klamann)

FACTBOX-Japan’s budget a tough balancing act