The Japanese government's initial budget for fiscal 2019 is set to top 100 trillion yen ($885 billion) for the first time, reflecting a sweeping fiscal stimulus package designed to underpin the economy after a consumption tax hike next year, government sources said Wednesday.
With swelling social security and defense costs also contributing, the record-high spending plan for the year beginning in April distances the country further from improving its battered fiscal health, the worst among major economies.
Prime Minister Shinzo Abe's cabinet is looking to approve a draft of the initial general account budget on Dec 21, clearing the way to submit it to the regular Diet session beginning in January.
It compares with the initial budget of 97.7 trillion yen for fiscal 2018.
Fiscal stimulus designed to prop up domestic demand following the Oct 1 tax hike from the current 8 percent to 10 percent will account for roughly 2 trillion yen of the total, including more than 500 billion yen to implement a state-subsidized scheme to give a 5 percent rebate to consumers who make purchases at smaller businesses with credit cards and other cashless means.
The scheme had initially been envisioned for a 2 percent rebate but was expanded.
It also includes shopping vouchers with enhanced purchasing power, which will be made available to households with low incomes or children aged 2 and under, as well as roughly 1 trillion yen in spending on public works.
Meanwhile, spending on social security and defense are both expected to reach record highs.
Social security expenditures account for about a third of the entire state budget, and are snowballing as the population rapidly ages.
Such spending, including for pensions and health insurance, is expected to increase by nearly 500 billion yen from the previous year. That is still lower than the 600 billion yen rise requested in August by the Ministry of Health, Labor and Welfare and other government offices.
Defense spending will top 5.2 trillion yen, increasing for the seventh consecutive year as the country prepares to introduce pricey equipment including the land-based Aegis Ashore missile defense system.
The government also plans to implement sweeping subsidies for preschool and day care to coincide with the consumption tax hike. The measure, which is to cover children from low-income households aged 0 to 2 and all children aged 3 to 5, will cost a further 400 billion yen in the first six months following the introduction of the program in October 2019.
Tax revenue, which will help fund the budget, is expected to climb to a record-high 62 trillion yen thanks to the tax hike. It remains to be seen whether the government can cut new bond issuance from the 33.7 trillion yen for fiscal 2018.