TOKYO (Reuters) – Japanese Prime Minister Shinzo Abe’s cabinet endorsed a record $860 billion budget for fiscal 2018 on Friday, opting to keep the economy on a sustained recovery with aggressive monetary stimulus and putting fiscal reforms on the back burner again.
The general-account budget spending for the next fiscal year starting April will total 97.7 trillion yen ($860 billion), the biggest amount ever and slightly more than this year’s initial plan to spend 97.5 trillion yen, the Ministry of Finance said.
The budget – a record high for the sixth year – got a boost from snowballing welfare spending to respond to a fast-ageing population and a record military outlay amid regional tensions related to North Korea. The demands strain the heaviest public debt burden in the industrialised world.
Failure to curb budget spending has cast doubt on Abe’s will to back fiscal reform. His administration is counting on growth to boost tax revenue and reduce new borrowing, and on the Bank of Japan’s (BOJ) low-rate policy to curb the high cost of servicing mammoth public debt.
“Abe’s fiscal reform relies heavily on economic recovery and optimistic tax revenue estimates,” said Masaki Kuwahara, senior economist at Nomura Securities. “I don’t see a strong determination to resolve public debt from this budget.”
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Social security spending, the budget’s biggest item, will rise 500 billion yen to a record 33 trillion yen next fiscal year, in line with the government’s mid-term fiscal plan to limit rises in welfare outlays to 500 billion yen a year.
“Without a credible fiscal plan, Japan will lose market confidence in the medium to long term,” said Hidenori Suezawa, financial market and fiscal analyst at SMBC Nikko Securities.
“It’s time to shift toward fiscal consolidation before the BOJ exits stimulus. Japan should be able to assure markets that it can manage debt without relying on the BOJ,” he said.
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