TOKYO (Reuters) - Japan unveiled on Friday a record 114.4 trillion yen ($863 billion) budget for the next fiscal year from April, pushed up by increased military spending and higher social security costs of catering to a fast-ageing population, piling on more debt.
The budget - endorsed by Prime Minister Fumio Kishida’s cabinet on Friday - features record military and welfare spending as it confronts regional security challenges.
Kishida’s controversial plan to double Japan’s defense spending to 2% of gross domestic product by 2027 contributed to a record 6.8 trillion yen increase in spending, adding to the nation’s public debt already exceeding 2.5 times the size of its economy.
To fund spending for military facilities, warships and other vessels, the government decided to issue in fiscal 2023 just over 434 billion yen of construction bonds, which are usually used to finance infrastructure spending, but not military equipment.
“I believe those ships can be considered assets worth asking for the people to share costs,” Finance Minister Shunichi Suzuki told reporters when asked about the decision, while adding the move should not be seen as abandoning fiscal restraints.
The need for more military spending comes at a time of intensifying economic challenges as the Ukraine war, soaring inflation and rising rates worldwide push the global economy to the brink of recession.
For fiscal 2023, the defense spending will rise to 6.8 trillion yen, up 1.4 trillion yen from this year. The government also set aside 3.4 trillion yen to help finance its five-year defense build-up plan.
All of this means a longer road to reducing Japan’s debt, as Tokyo aims to achieve a primary budget surplus, excluding new bond sales and debt servicing costs, by the fiscal year ending March 2026.
On the brighter side, tax revenue is estimated at a record 69.4 trillion yen thanks in part to recovery in corporate profits, allowing the government to reduce new bond sales by 1.3 trillion yen to 35.6 trillion yen.
Still, the budget’s debt dependency ratio stood at 31.1%, underscoring the fiscal constraints faced by the government.
On a related note, Russia accused Japan of abandoning decades of pacifist policy and embracing “unbridled militarization”.
In response to a $320-billion military plan announced by Japan’s Prime Minister Fumio Kishida last week, Russia’s Foreign Ministry said “It can be clearly seen that Tokyo has embarked on the path of an unprecedented build-up of its own military power, including the acquisition of strike potential.”
Russia said such a move will “inevitably provoke new security challenges and will lead to increased tension in the Asia-Pacific region,” criticizing Japan’s military spending which has been increasing despite the growth of structural imbalances in the state budget.”
Relations between Tokyo and Moscow have long been overshadowed by an unresolved dispute over a group of Pacific islands. The Kuril Islands, located in the Sea of Okhotsk, lie fewer than 10 kilometers from Japan’s Hokkaido.