(For more stories on the Japanese economy, click [ID:nECONJP])
* Non-debt servicing spending request tops Y72.6 trln -MOF
* MOF sees debt-servicing costs at Y24.1 trln
* Govt to trim requests when compiling budget in Dec (Adds vice finmin Ikeda quotes, details)
By Tetsushi Kajimoto
TOKYO, Sept 1 (Reuters) - Japan’s government ministries have requested a record 96.7 trillion yen ($1.1 trillion) for an annual budget for the fiscal year from next April, the Ministry of Finance said on Wednesday, adding to the country’s debt woes.
The government may struggle to trim the requests by December, when it compiles its initial budget for 2011/12, to keep its self-imposed cap on new debt issuance, while it could come under pressure for more spending to prop up a fragile economy.
The fate of the state budget will also be affected by the outcome of the Sept. 14 ruling Democratic Party leadership vote, in which Prime Minister Naoto Kan will face off with powerbroker Ichiro Ozawa, who is seen as less committed to fiscal reform. [ID:nPOLJP]
The winner of the race will likely become premier by virtue of the Democrats’ majority in parliament’s powerful lower house.
The budget requests were made by a deadline on Tuesday, after the government in July set new guidelines which capped spending excluding debt-servicing costs at around 71 trillion yen, the same as the current year.
The government has pledged to keep new bond issuance for the next fiscal year at this year’s level of around 44 trillion yen to rein in public debt, which is the worst among developed countries at nearly twice the size of its $5 trillion economy.
“We are aiming to restore fiscal health while spurring economic growth at the same time” through budgetary measures, Deputy Finance Minister Motohisa Ikeda told reporters.
But even setting a cap on budget requests could not keep the total amount from topping the previous year’s record of 95.04 trillion yen, as debt-servicing costs grew and the government failed to curb social welfare costs due to an ageing society.
Of the total amount, general spending plus debt-servicing costs amount to 93.8 trillion yen, and ministries have requested another 2.94 trillion yen for a special framework aimed at revitalising Japan’s economy, the Ministry of Finance said.
Under the guidelines, the government set aside more than 1 trillion yen to fund measures to spur growth, meaning that it will need to cut ministries’ requests for the special framework or slash spending elsewhere.
Spending excluding debt-servicing costs amounted to 72.6 trillion yen, while debt-servicing costs came to 24.1 trillion yen, up 3.5 trillion yen from the current fiscal year.
General spending plus payouts to local governments account for about 80 percent of the budget. Debt servicing costs — interest payments and redemptions on the debt — take up the remaining 20 percent.
The budget this fiscal year hit a record 92.3 trillion yen, of which only 37.4 trillion yen is covered by tax revenues.
Japan’s public debt has long been financed domestically from its massive pool of savings, helping keep bond yields well below equivalent yields in the United States.
Fears are growing, however, that the country’s ageing population will start drawing on savings, forcing Japan to rely more on foreign investors to fund its debt and potentially destabilising markets. ($1=84.17 Yen) (Reporting by Tetsushi Kajimoto; Editing by Joseph Radford)