Japan’s Fiscal 2024 Budget Second Highest on Record at ¥112 Trillion

The government approved a ¥112.1 trillion budget for fiscal 2024 on December 22, 2023, in a 6.3% increase over the previous year’s initial budget. While this was the first time in 12 years that the budget had been reduced, mainly through cutbacks to financial reserve funds, which sees a drop of ¥2.3 trillion under the 2023 record-high initial budget, it was still the second consecutive year the amount surpassed ¥110 trillion.

Social security spending, which accounts for about one-third of all expenditures, rose 2.3% to a record high of ¥37.7 trillion, due to a natural increase in the aging population as well as measures to tackle the falling birthrate. In addition, servicing the national debt by redeeming or paying interest on government bonds previously issued increased by 7.0% to ¥27.0 trillion. This was almost one-quarter of all expenditures and when combined with social security spending accounted for 58% of the total. Defense spending ballooned by 16.6% to ¥7.9 trillion in response to the heightening severity of the security environment.

Revenue, meanwhile, is forecast to reach a record high of ¥69.6 trillion. Although increases are predicted in income from consumption tax and corporate tax, overall tax revenue is set to only rise by 0.2% due to the introduction of a flat-rate tax reduction as a way to return money to the public. The amount of new government bonds issued to make up for the revenue shortfall will drop 1.9% to ¥34.9 trillion. Japan’s bond dependency ratio, which indicates the ratio of debt to revenue, is 31.2%.

Until the 1980s, the gap between tax revenues and expenditures was relatively small, so that the amount of JGBs issued for each fiscal year never exceeded ¥15 trillion. However, with the collapse of the bubble economy and prolonged economic stagnation, the balance of payments deteriorated as a result of repeated fiscal stimulus packages and tax cut policies. The outstanding amount of issued government bonds has since been increasingly annually and is predicted to reach ¥1.1 quadrillion by the end of fiscal 2024.

Interest rates were formerly kept low through the Bank of Japan purchasing massive quantities of JGBs, but from December 2022, the bank has gradually become more flexible on long-term yields and it appears to be preparing to scrap negative interest rates. Given the burden of interest payments that have accumulated over the years, Japan may well be finally plunged deep into debt.

(Translated from Japanese. Banner photo © Pixta.)