March 28, 2018 / 10:26 AM / a year ago

Japan budget passes parliament, cronyism scandal casts cloud over reform

A Japan Yen note is seen in this illustration photo taken June 1, 2017. REUTERS/Thomas White/Illustration

TOKYO (Reuters) - Japan’s parliament approved a record $926 billion state budget on Wednesday for the next fiscal year, starting on April 1, with analysts wary about Prime Minister Shinzo Abe’s ability to push fiscal reform as he faces a crisis over suspected cronyism.

With the passage of the budget bills, attention is shifting to debate on a mid-year fiscal reform plan to rein in what is already the heaviest public debt burden in the industrialized world.

Analysts doubt Abe would push painful reform, at a time when he faces his biggest political crisis since taking office in late 2012 as suspicions swirl about a sale of state-owned land at a huge discount to a nationalist school operator with ties to his wife.

The 97.7 trillion yen ($925.89 billion) spending plan - above 97.5 trillion yen initially planned for the current fiscal year - features a large welfare outlay to respond to a fast-ageing population and a record military outlay to cope with regional tension related to China and North Korea.

Failure to curb spending has cast doubt on Abe’s will to back fiscal reform, as he counts on economic growth to boost tax revenue to reduce new borrowing and on the central bank’s low-interest rate policy to curb the high cost of servicing the public debt.

Analysts are calling for streamlining welfare spending as the government is set to draw up a new fiscal plan around June.

The premier has pushed back a 2020/21 budget-balancing goal, with a pledge to ensure a social welfare system for all generations.

The upper house of parliament gave the budget final approval on Wednesday. It sailed through the powerful lower chamber last month.

($1 = 105.5200 yen)

Reporting by Tetsushi Kajimoto; Editing by Kim Coghill, Robert Birsel

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