Japan's government plans to trim its initial budget for next financial year from this year's record, but spending cuts will be achieved by using a special type of bond that does not need to included in general accounts, the Nikkei newspaper said.
The government is planning a 90 trillion yen ($1.2 trillion) initial budget for the year beginning next April 1 that would include 68.4 trillion yen of actuual spending, the paper said. It would mark the first decline in the initial budget for six years and compares with the record 92 trillion yen initial budget this year, which contained 71 trillion yen in spending.
The government is considering issuing special-purpose bonds to fulfil the state's share of pension payouts, thereby excluding related costs from the budget's general account. The bonds are designed to be repaid through future sales tax increases.
Reliance on debt would actually increase when the special bonds are taken into account, although the government would technically be able to honour its pledge to keep new borrowing and general spending at this year's levels of around 44 trillion yen and 71 trillion yen. The general budget will also exclude costs related to rebuilding areas of the north-east devastated by the March earthquake and tsunami, which the government plans to finance with another type of special bond due to be repaid over 25 years, financed by rises in corporate and income taxes.
With its public debt already twice the size of the $5 trillion economy, Japan wants to slow increases in its debt pile through self-imposed ceilings as the eurozone debt crisis has spooked markets.
Investors are also wary about additional fiscal burdens but they do not so far see funding strains as serious as those in the eurozone, thanks to Japan's large domestic savings. The March disaster has led the government to compile three supplementary budgets totalling 18 trillion yen, on top of the record initial budget. It plans to approve another extra budget of over 2 trillion yen in the coming days.
For next fiscal year, tax revenues are estimated at around 42 trillion yen, falling short of new borrowings for a third straight year, while the government plans to secure over 3.5 trillion yen in non-tax revenues, down from 7.2 trillion yen this year, the Nikkei said.
The ruling Democratic Party plans to agree by the end of the year a proposal to eventually double the 5 percent sales tax to pay for rising welfare costs, but Prime Minister Yoshihiko Noda is struggling to win broad support. A newspaper poll has found that 54 percent of Japanese oppose the government's plan to double the tax by mid-decade. Debt-servicing costs are estimated at 22 trillion yen for next fiscal year, the Nikkei said.