* New borrowing 41.25 trln yen, tax revenue 50 trln yen
* Spending at record 95.9 trln yen, tax income 7-yr high
* Borrowing accounts for 43 pct of budget spending
* Focus on near-term stimulus, fiscal goal looks elusive
By Tetsushi Kajimoto
TOKYO, Dec 24 Japanese Prime Minister Shinzo Abe
on Tuesday secured cabinet approval for a draft budget for the
next fiscal year that aims to split the benefits of higher tax
revenue between trimming fresh borrowing and stimulating the
economy with record spending.
The government's second annual budget since Abe's election
triumph a year ago marks a balancing act between boosting growth
and doing just enough to show it is keen to rein in public debt,
which is more than twice the size of the economy.
Of projected record spending of 95.88 trillion yen ($921.97
billion) in 2014/15, about one-third will be spent on social
security while debt servicing costs will account for nearly
"Abe vows to seek both growth and fiscal consolidation, but
the focus now needs be on stimulus," said Hidenori Suezawa,
analyst at SMBC Nikko Securities. "Hasty fiscal tightening could
derail the economy and foil the sales tax plan in 2015."
Spending in the general-account budget for the year starting
April 2014 will rise more than 3 trillion yen from this year's
initial budget, the Ministry of Finance said, with higher
outlays for public works, military and social security.
Ministry officials played down the rise, however, saying it
was inflated by technical factors such as the transfer on-budget
of outlays from special accounts, and allocations from a planned
April sales tax hike to shore up social security funding.
Interest payments also rose while welfare costs increased as
Japan's population ages.
Tax revenue is estimated at 50 trillion yen, rising 6.9
trillion yen from this year to a seven-year high, reflecting
both expected economic growth of 1.4 percent and an increase in
the sales tax to 8 percent from 5 percent that kicks in April.
New bond sales will be cut by 1.6 trillion yen from the
current fiscal year to 41.25 trillion yen, a second consecutive
decrease, but the government still relies on borrowing to cover
43 percent of its spending, down from 46.3 percent this year.
A "flexible fiscal policy" combining near-term stimulus with
longer-run consolidation is part of Abe's economic recipe that
also mixes in hefty monetary easing and pro-growth reforms.
Analysts expect budgets to stay loose for the time being to
help the economy manage the planned two-step doubling of the
sales tax to 10 percent, with the first increase due in April.
Earlier this month, the government approved 5.5 trillion yen
in extra spending for the current fiscal year to cushion the
first increase in the sales tax. The second part of the increase
to 10 percent is pencilled in for October 2015.
Some analysts worried about a lack of measures to help the
world's third-largest economy sustain growth.
"We want to see more wise spending in areas with growth
potential," said Naoki Iizuka, economist at Citigroup Global
Markets Japan. "We cannot rely on public works forever."
The public works budget will rise to 5.96 trillion yen from
this year's 5.28 trillion yen, including new bullet train lines,
quake-proofing of infrastructure, and projects linked to the
Tokyo 2020 Olympics.
ELUSIVE BUDGET GOAL
Analysts and ministry officials say the government is making
progress towards its goal of halving the primary budget deficit,
which excludes new bond sales and debt servicing costs, by
The government estimates its primary budget deficit at 18
trillion yen in fiscal 2014/15, down 5.2 trillion yen from this
year for the second biggest decrease on record.
Still, calculations by both analysts and the government
suggest Tokyo would miss its goal of a primary surplus in
2020/21 without further tax increases and spending cuts.
"I'm less confident about achieving the fiscal 2020/21 goal
than meeting the 2015/16," Finance Minister Taro Aso told
reporters, saying that he would seek the way to clear the target
while focusing on economic recovery.
Asked about determination to meet the fiscal goal, he said:
"If you force me to choose between economic recovery and fiscal
rebuilding, economic growth has higher priority. That's clear."
SMBC Nikko's Suezawa said social security spending must be
streamlined in order to get runaway debt and spending under
control to meet the 2020/21 target.
"The Abe administration, like the previous government, will
struggle with cuts to welfare spending that could risk
alienating the growing ranks of elderly voters," he said.
Social security outlays to cover healthcare and pensions for
the fast-ageing population will top 30 trillion yen for the
first time, up 1.4 trillion yen from this year and accounting
for roughly a third of the budget.
Debt servicing costs - interest payments and redemptions -
are expected to rise to 23.2 trillion yen, up 1 trillion yen
from this year and the budget's second-biggest item.
Defence outlays amount to 4.78 trillion yen, up 2.2 percent
on the year and marking the biggest increase in 18 years, amid
simmering tensions between Japan and China over tiny islands
that both claim in the East China Sea.
The International Monetary Fund estimates Japan's general
budget deficit at 9.5 percent of GDP in calendar 2013, among the
worst in the developed world, and narrowing to a still-elevated
6.8 percent in 2014. Public debt already exceeds 240 percent of
GDP, by far the highest among major economies.