Japan's cabinet greenlights record-high FY 2017 budget on soaring welfare costs, military spending

Japan's cabinet on Thursday approved a record-high 97.45 trillion yen (830 billion U.S. dollars) budget for fiscal 2017, with soaring social security costs and military spending weighing on the country's already-tattered fiscal health.

According to the draft budget, the fiscal year starting from April 2017 will see a record-high 73.93 trillion yen (629 billion U.S. dollars) earmarked for policy spending in the general account of the Japanese government.

Among the major outlays, spending on social security will rise to some 32.47 trillion yen (276 billion U.S. dollars), accounting for a third of the total budget, on the back of the increasingly aging society of Japan.

Spending on pensions are expected to reach 11.5 trillion yen (98 billion U.S. dollars), up 1.5 percent compared to the amount allocated by the initial budget of fiscal 2016, and medical expenses to rise by 2 percent to 11.5 trillion yen (98 billion U.S. dollars).

Defense spending, another major outlay, will hit a record-high of 5.13 trillion yen (44 billion U.S. dollars), up 1.4 percent compared to the current year's initial budget, and rising for the fifth straight year since Abe took office in 2012, a growing concern for Japan's neighboring countries.

The defense budget will cover the planned establishment of a Marine Corps-like amphibious force at the end of fiscal 2017 and a new sea-based ballistic missile interceptor which has been co-developed by Japan and the United States.

It also includes an allocation of 39.1 billion yen (333 million U.S. dollars) for purchasing four V-22 Ospreys and 34 billion yen (289 million U.S. dollars) for pilot training and other costs, so that Japan's Ground Self-Defense Forces could start deploying 17 units of the contentious tilt-rotor transport aircraft in 2019 which just had an accident in Okinawa and evoked anger for the central government as well as the U.S. presence in the island prefecture from the local people.

Other expenditures include a total of 5.98 trillion yen (51 billion U.S. dollars) allocated for public works projects and other purposes such as strengthening defense in the East China Sea and boosting tourism, and a 5.36 trillion yen (46 billion U.S. dollars)for cultural, educational projects and for boosting scientific research development.

The outlay on Japan Coast Guard operations is set to reach a record high to 210.6 billion yen (1.8 billion U.S. dollars), with 57.8 billion yen (492 million U.S. dollars) allocated to enhancing patrol capabilities close to remote islands through constructing a helicopter-carrying boat and another large patrol vessel.

Debt serving expenses, including payment for interests, are to reach 23.5 trillion yen (200 billion U.S. dollars), accounting for 24.1 percent of the total budget.

The spending is expected to be mainly covered by taxes and other revenues collected by the government, with tax revenue predicted to leap to 57.71 trillion yen (491 billion U.S. dollars), up 0.2 percent from the current year's initial budget, as the government envisions a real economic growth of 1.5 percent in fiscal 2017, which is much higher than the market projection of 1.0 percent expansion.

The government, also projecting the nominal GDP to rise by 2.5 percent to 553.5 trillion yen (4.7 trillion U.S. dollars) in fiscal 2017, expects to reduce its dependence on debt, though very slightly, to 35.3 percent from the 35.6 percent in the fiscal 2016 initial budget, with issuance of new bonds expected to fall to 34.37 trillion yen (292 billion U.S. dollars) in fiscal 2017.

The government, which uses debt for financing more than other developed economies, however, is still burdened with arrears that continue to stand as the highest in the industrialized world, amounting to more than twice the size of Japan's economy.

Japan has pledged to turn its primary balance deficit into a surplus by fiscal 2020, but the outlook seems slim, as Prime Minister Shinzo Abe decided again to postpone the second round of the sales tax hike to October 2019.

"We need to make tireless efforts to make both social security and finances sustainable by promoting reform of medical and elderly care," Chief Cabinet Secretary Yoshihide Suga said at a press conference Thursday.

"The budget is compiled based on an over-optimistic projection of the economic growth next year and the increase of the tax revenue. However, the truth is that Abenomics has failed," said Ogushi Hiroshi, who heads the opposition Democratic Party's policy research council, adding that the budget lacks sufficient ground, citing the decrease of tax revenue in fiscal 2016.

The Japanese government has downgraded its tax revenue estimate for fiscal 2016 by 1.74 trillion yen (14.8 billion U.S. dollars), which has to be made up for by issuing more bonds.

The draft budget, along with a 622.5 billion yen (5.3 billion U.S. dollars) extra budget for fiscal 2016 mainly for disaster relief and defenses, will be submitted to a Diet session starting early next year. Endit