December 20, 2019 / 1:14 AM / a month ago

Japan cabinet approves record $939 bln budget spending plan for FY 2020/21

* FY2020/21 budget at $939 bln, boosted by welfare, military cost

* PM Abe focus on growth to boost tax revenue, trim debt

* Strategy to rely on growth, BOJ’s low-rate policy at crossroad

By Tetsushi Kajimoto

TOKYO, Dec 20 (Reuters) - Japan’s government has approved a record budget spending plan worth $939 billion for the coming fiscal year, the Ministry of Finance said on Friday, as it struggles to curb spending and manage the industrial world’s heaviest public debt burden.

The 102.7 trillion yen ($939 billion) general-account budget for the year beginning April 1 marks a 1.2% rise from the current year, boosted by record outlays for welfare and the military and other spending aimed at boosting the economy.

Prime Minister Shinzo Abe has prioritised growth over fiscal reform under his “Abenomics” reflationary policy of monetary stimulus and flexible spending, and planned spending has increased for eight straight years.

Part of the planned spending will help finance a $122 billion fiscal package put together this month by Abe’s cabinet to shore up growth beyond the 2020 Tokyo Olympics after hits from the U.S.-China trade war and an Oct. 1 sales tax hike to 10%.

Abe’s administration is counting on economic expansion to boost tax revenues to help finance debt, as limited scope for monetary stimulus prompts global policymakers to focus on fiscal spending.

Parliament must now approve the plan, along with a separate extra budget for this fiscal year, early in 2020.

“Despite the tax hike, public finances are worsening as the government expands spending to ease the pain of the higher levy,” said Koya Miyamae, senior economist at SMBC Nikko Securities.

Japan’s public debt is more than double the size of its $5 trillion economy, by far the highest among advanced economies. Bond yields have been suppressed by Bank of Japan money printing under a policy that caps 10-year JGB yields around 0%, allowing the government to rely on cheap borrowing.

Perhaps mindful of fiscal discipline, Japan aims to cut new bond issuance for a 10th straight year - to 32.6 trillion yen from 32.7 trillion yen this year, helped in part by additional revenues from the sales tax hike.

But the government is still relying on its rosy forecast of 1.4% real GDP growth for the next fiscal year - private-sector economists predict around 0.5% - which is expected to help boost annual tax income to a record 63.5 trillion yen.

The budget plan would leave the debt-dependency ratio at 32%. The government’s primary budget deficit - excluding new bond sales and debt servicing - is seen at 9.2 trillion yen, 50 billion yen wider than this year.

The heavily indebted government will scrape together money from non-tax revenue such as budget reserves to fill a funding gap, according to the plan. It has also set aside 1.8 trillion yen for stimulus measures to boost consumer spending and infrastructure investment.

The 2020/21 draft budget comes on top of additional proposed spending of 4.5 trillion yen for this fiscal year, making it harder to achieve a target to balance the budget by the end of March 2026.

The announcement was in line with a Reuters report published on Wednesday. ($1 = 109.3700 yen)

Reporting by Tetsushi Kajimoto; Editing by Kirsten Donovan

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