Japan passes 2011/12 budget, focus shifts to quake relief

TOKYO (Reuters) – Japan’s parliament passed a $1.1 trillion budget on Tuesday for the year from April 1 but the government faces a struggle to win approval for bills on related spending, clouding the outlook for an emergency budget to cope with damage from the March 11 earthquake.

Tokyo estimates the material damage from the magnitude 9.0 quake, which unleashed a deadly tsunami on Japan’s northeast coast, could top $300 billion, making it the world’s costliest disaster. More than 27,000 people are dead or missing, and around 10 times that number are homeless.

The government aims to compile several extra budgets to cope with the disaster, with the first — likely to be compiled by the end of April — focusing on urgent steps such as removal of rubble and construction of temporary housing.

The opposition-controlled upper house rejected the 2011/12 budget but the ruling bloc was able to pass it because of its majority in the more powerful lower house.

Still, the ruling Democratic Party of Japan needs opposition backing to pass a key bill authorizing the government to issue deficit-financing bonds to fund spending in the annual budget and future supplementary budgets.

The opposition bloc has shown little sign of supporting the deficit bond bill.

The main opposition Liberal Democratic Party — which ruled Japan almost without interruption for half a century — wants the government to ditch all its key spending plans worth more than 3 trillion yen ($36.7 billion) to free up funds for reconstruction.

“After the (annual) budget gains approval, I want ruling and opposition parties to discuss an extra budget on quake measures,” Prime Minister Naoto Kan told parliament.

“A debate will be needed on both revenue and spending, and we’d like to discuss what will take priority in directing spending and to reach an agreement.”

Kan said he would not rule out any options to cover the cost of disaster reconstruction, including a tax hike or shelving plans to cut Japan’s corporate tax rate. The government will also tap emergency reserves funds worth 1.16 trillion yen earmarked in the annual budget.

The Democrats, who need opposition votes to pass the bill allowing it to sell fresh bonds to fund about 41 percent of the 2011/12 budget, have signaled readiness to scale back key spending plans, including child care support and toll-free highways.

But they have been hesitant to roll back all of their spending plans, which were based on campaign pledges of support for families in the 2009 election that swept them to power.

Some economists and ruling party lawmakers say total disaster-related spending may reach $100 billion, which could further strain finances, with public debt twice the size of Japan’s $5 trillion economy — the highest among industrial nations.

The government would have little trouble raising extra funds given the current market situation, analysts say, but some see a risk that an increased supply of government bonds could push up borrowing costs. ($1 = 81.705 Japanese Yen)

(Reporting by Tetsushi Kajimoto; Editing by Edmund Klamann)

Japan passes 2011/12 budget, focus shifts to quake relief