Japan approves $1.16-trillion draft budget

Japan's cabinet approved Saturday a 90.334 trillion yen ($1.16 trillion) budget for the 2012 fiscal year, with a record 49 percent financed by bonds even as the country struggles to rein in its massive public debt. Finance Minister Jun Azumi said Japan had reached its "limit" in relying on debt and said he was aware the global community was watching him in light of the serious debt woes in Europe. Under the draft budget, to be submitted to parliament next year, the government would issue fresh bonds worth 44.2 trillion yen in the year from April, aggravating Japan's public debt, which at nearly double its GDP is the worst among industrialised nations. The proposed budget is technically 2.2 percent smaller than the original budget for the ongoing year to March. But local media said the budget in reality is the largest ever, worth more than 96 trillion yen, when key items accounted for in separate budgetary steps are included, such as money needed to rebuild the tsunami-hit northeast. The finance minister said a thorough reform of tax and budget were necessary to ensure provision of public services and to regain confidence of the international community as the nation continues to accumulate debt. "I think that Japan's budget-making processes and its reliance on public debt have reached their limits," Azumi told a news conference. The budget draft shows Japan's dire fiscal situation with estimated tax revenue of 42.346 trillion yen, which falls short of the planned bond issuance for a third straight year. Debt-servicing costs are estimated to be 21.944 trillion yen, a quarter of the planned budget and 51.8 percent of estimated tax revenue. The draft budget leaves out 3.775 trillion yen to be used for reconstruction of the quake and tsunami-hit region and 2.682 trillion yen "reconstruction bonds". In an unusual budgetary move, the government has also decided to issue 2.6-trillion-yen worth of special bonds for the pension fund to cover payments the government is supposed to make to pensioners next fiscal year. The special bonds will not be accounted in the main budget and seemingly reduce the amount of bond issuance. Azumi stressed the need to raise the five-percent consumption tax to pay for expanding pension costs as Japan's working-age population shrinks. "I'd like (the Japanese public) to allow us to raise the consumption tax and overhaul the tax-revenue structure to make ourselves fully prepared to look after a continuously ageing society and somehow reverse the falling birth rates," he said.