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Japan’s fiscal 2025 initial budget requests likely hit a record of over 117 trillion yen ($808 billion), a record high for the second straight year, a Kyodo News tally showed Friday, with social security and defense spending swelling.
Requests from the Defense Ministry and the health ministry, which is in charge of medical and pension policies, increased to their largest levels, while rising interest rates raised the cost of servicing debt used to cover shortfalls in tax revenue.
The general-account budget for the next fiscal year from April 2025 could surpass the previous record of 114.38 trillion yen earmarked for fiscal 2023, underscoring Japan’s failure to restore its fiscal health, the worst among major developed economies.
An official at Japan’s Finance Ministry conducts an online hearing for the budgetary request on Aug. 30, 2024. (Image partially pixelated by provider)(Photo courtesy of Japan’s Finance Ministry)(Kyodo)
Government ministries and agencies were expected to submit their budgetary requests by Friday, the final business day in August. General-account budget requests entail spending for social security, national defense, industrial development and public works projects.
The Finance Ministry will try to trim the requests down the road. The initial budget for fiscal 2024 was eventually reduced to 112.57 trillion yen from the requested 114 trillion yen.
The government normally drafts a state budget in December for the next fiscal year, but the presidential race of the ruling Liberal Democratic Party is scheduled to be held in September to choose the successor to outgoing Prime Minister Fumio Kishida.
The total size of the initial budget for fiscal 2025 may reach a new record high if the new prime minister pledges to boost public spending to shore up Japan’s economy, which has been weighed down by inflation exceeding wage hikes, analysts said.
While the government will need to fund a substantial portion of the expanded spending through the issuance of bonds, the Finance Ministry estimates the cost of interest payments on existing debt at 28.91 trillion yen, up 7.0 percent from the initial budget for fiscal 2024.
The ministry plans to set an assumed interest rate for calculating the cost of interest payments on government bonds at 2.1 percent for fiscal 2025, up from the current 1.9 percent, with the Bank of Japan eager to tighten monetary policy.
By government department, the Defense Ministry’s request topped 8 trillion yen for the first time, with a plan to deploy drones to better protect remote islands against the backdrop of a growing Chinese military presence in the Indo-Pacific region.
The Health, Labor and Welfare Ministry sought a record 34 trillion yen to bolster spending on medical nursing services and dementia measures, as Japan struggles to manage social security costs amid a rapidly aging population and declining birth rate.
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