Japan's cabinet approved on Saturday an extra budget worth 4.79 trillion yen ($54 billion) to fund economic measures to prevent the world's No2 economy from sliding deeper into recession amid the global financial crisis. The government plans to submit the extra budget.
Its second for the fiscal year to next March - to parliament on January 5, but it is unclear when it will pass a divided parliament, while some analysts doubt the impact the economic steps. The extra budget is aimed at helping finance new spending plans totalling 10 trillion yen in two economic packages Prime Minister Taro Aso has announced, one worth 27 trillion yen unveiled in October and the other 43 trillion yen set out on Friday. Much of the packages included non-cash steps such as loan guarantees for small firms.
Tokyo has joined other governments around the world in pledging hundreds of billions of dollars in fiscal stimulus plans to lessen the impact of the financial crisis on their economies. But the moves have fuelled fears of further aggravating Japan's tattered finances with public debt running at 1-1/2 times the country's gross domestic product, the biggest in the developed world. Some analysts called Japan's steps mistimed, given that the budgetary measures are unlikely to be implemented until April.
"The problem is that it is taking more than five months for Prime Minister Aso to carry out his economic measures at a time when economic conditions are rapidly changing at home and abroad," said Takahide Kiuchi, senior economist at Nomura Securities.
"If we can't expect much from the economic steps for their effectiveness while they help reverse the path of fiscal reform, the government will lose credibility for its economic and fiscal management." Underlining the fiscal woes, the Ministry of Finance submitted to the cabinet meeting on Saturday its draft budget for the financial year to March 2010, which totals about 88.55 trillion yen - the biggest ever initial budget figure.
New debt issuance in fiscal 2009/10 will be 33.29 trillion yen, up 31 percent from the current year's initial budget and topping 30 trillion yen for the first time in four years, due to spending on the economic steps and a big drop in tax revenue. For the current fiscal year to next March, tax revenues are expected to fall 7.13 trillion yen short of an initial estimate of 53.55 trillion yen due to slump in corporate tax revenues as the economy has slid into a recession.
The bulk of the tax revenue shortfall will be covered by the government issuing deficit-covering bonds in the second supplementary budget that totals 4.8 trillion yen. To fund the economic steps through the extra budget, the government will also issue so-called construction bonds, which are used for specified purposes such as public works, worth 390 billion yen while dipping into reserves set aside in a special account for "zaito" fiscal investment and loan programmes.
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