Japan Readies Record $800 Billion Budget For 2015-16, Sources Say

(Reuters) -- Japan’s government will propose a record budget of more than $800 billion for the next fiscal year, but cut borrowing for a third year, government officials said Sunday, as Prime Minister Shinzo Abe seeks to maintain growth while curbing the heaviest debt burden in the industrial world. The third annual budget since Abe swept to power in late 2012 also highlights his struggle to contain bulging welfare costs for the fast-aging society while increasing discretionary spending in areas such as the military.

Abe’s 96.3 trillion yen ($813 billion) draft budget for the year from April, to be approved by the Cabinet Wednesday and submitted to a subsequent session of Parliament, is up from this fiscal year’s initial 95.9 trillion yen, the two officials told Reuters.

But spending restraint and a surge in tax revenue as the economy recovers allows the government to cut bond issuance by 4.4 trillion yen, to 36.9 trillion yen, the third decrease in a row and the lowest level in six years, the officials said.

The improved fiscal picture helps Abe trim Japan’s public debt, which is well over twice the country’s gross domestic product after years of sluggish growth and huge stimulus spending. The budget for the coming year follows an extra budget of 3.1 trillion yen for this fiscal year, approved last week.

With the budget deficit -- excluding new bond sales and debt servicing -- projected at roughly 3 percent of GDP for the 2015-16 fiscal year, Abe will meet the government’s promise of halving the debt ratio from 2010-11 levels.

But Finance Ministry calculations show that the goal of balancing the budget by 2020-21 remains ambitious.

Abe raised the national sales tax last April to 8 percent from 5 percent, sending the world’s third-biggest economy into recession. He postponed a second increase, to 10 percent, by 18 months to April 2017, but the economy’s upturn under the premier’s easy-money policies is set to boost tax revenue in the coming year.

The draft budget projects tax revenue rising by 4.5 trillion yen, to 54.5 trillion yen, the officials said, easing somewhat the need to issue more bonds. Debt will finance about 38 percent of the coming year’s budget, down from this year’s 43 percent.

But as the government continues to run a deficit, debt servicing, interest payments and redemptions are set to rise by about 200 billion yen, to 23.5 trillion yen.

Social-welfare spending, such as medical care, is set to rise by 1 trillion yen, to 31.5 trillion yen.

(Reporting by Takaya Yamaguchi; Writing by William Mallard; Editing by Will Waterman)