politics

Diet enacts record Y96.34 trillion budget for fiscal 2015

19 Comments

The Diet on Thursday enacted a record 96.34 trillion yen budget for the fiscal year to March 2016, including fresh economy-boosting stimulus and more defense spending as Tokyo eyes an increasingly assertive China.

The upper house passed the budget after the lower house passed it last month.

Among the spending is 5.97 trillion yen for public works, while other funds will pay for programs such as child-care and medical assistance which are aimed at luring more women into the workforce, a key part of Prime Minister Shinzo Abe's bid to stimulate the long-tepid economy, dubbed Abenomics.

Japan's defense spending will also set a record at 4.98 trillion yen as the hawkish Abe looks to strengthen surveillance of territorial waters amid ongoing diplomatic battles with Beijing over the ownership of islands in the East China Sea.

Almost one-third of the budget is for social security programs, estimated to cost a record 31.53 trillion yen, up 3.3% from the fiscal 2014 budget and underscoring how Japan's rapidly aging population is straining the public purse.

One quarter of the package will cover Tokyo's debt-servicing costs with plans to issue fresh bonds worth 36.9 trillion yen to help pay for the increased spending.

© Japan Today/AFP

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19 Comments
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Highest government debt of any country after Greece at 220% GDP. Great plan - spend more - to falsly supports the economy.

6 ( +8 / -2 )

I look forward to many more posts comparing the currency issuing, monetarily sovereign country of Japan with the currency using, non-monetarily sovereign country of Greece. A country which, like many others, insanely gave up their ability to control the currency they use. But don't worry if you can't understand the difference, neither can Taro Aso.

One quarter of the package will cover Tokyo’s debt-servicing costs with plans to issue fresh bonds worth 36.9 trillion yen to help pay for the increased spending.

The debt-servicing myth again. The Japanese Ministry of Finance, for reasons known only to them, includes the amount rolled over from maturing bonds into newly issued bonds in their calculation of "debt-servicing". The true amount spent on debt-servicing (aka interest payments) is a small fraction of what they claim.

4 ( +8 / -4 )

One third of the budget is just for take care of the elderly... wow.

-1 ( +1 / -2 )

Another record budget? Year upon year. Next budget will be a Quadrillion down the drain.

One third of the budget is just for take care of the elderly... wow.

Yeah and two thirds is for their nomikai's and businesstrips to soaplands

2 ( +3 / -1 )

Why on earth cant Japan reign in some spending, insane!

4 ( +4 / -0 )

the biggest difference between japan and greece is that japanese debt is held by japan, whereas greek debt is held by the world bank and other foolish organizations that lent greece money.

-2 ( +1 / -3 )

The Diet on Thursday enacted a record 96.34 trillion yen budget for the fiscal year to March 2016, including fresh economy-boosting stimulus and more defense spending as Tokyo eyes an increasingly assertive China.

I wish JT would have a feature to allow us to thumb the story up/down, not just the comments!

Almost one-third of the budget is for social security programs, estimated to cost a record 31.53 trillion yen

with plans to issue fresh bonds worth 36.9 trillion yen

So new bonds need to be issued to pay for the entire social security program budget, and then some.

Fingers crossed that the residents of Japan can get away with their central bank monetizing all this debt, for eternity, without consequences.

ifd66,

Greece's debt is actually below Japan's relative to GDP, I think you'll find.

Guy_Jean,

The Japanese Ministry of Finance, for reasons known only to them, includes the amount rolled over from maturing bonds into newly issued bonds in their calculation of "debt-servicing". The true amount spent on debt-servicing (aka interest payments) is a small fraction of what they claim.

On this point, you are absolutely correct. The interest payments amounts to something like 11% currently, not the frequently quoted 25%.

But at the same time, one can't say that Japan's finances are in perfectly good shape. They are certainly headed in completely the wrong direction.

2 ( +2 / -0 )

The Japanese people own their own debt and will not call on it, unlike Greece which is the whipping boy of the World Monetary Fund. If they tell Greeks to wear bathing suits, they Greeks must comply.

-2 ( +3 / -5 )

The debt-servicing myth again. The Japanese Ministry of Finance, for reasons known only to them, includes the amount rolled over from maturing bonds into newly issued bonds in their calculation of "debt-servicing". The true amount spent on debt-servicing (aka interest payments) is a small fraction of what they claim.

Guy and fxgai -- what parrallel universe version of economics did you guys learn? Let's see how Investopedia defines "debt-servicing costs":

DEFINITION of 'Debt Service' The cash that is required for a particular time period to cover the repayment of interest and principal on a debt. Debt service is often calculated on a yearly basis. Debt service for an individual often includes such financial obligations as a mortgage and student loans.

Of course they have to include the principal amount. And the fact that Japan is having to issue more debt just to re-pay old debt is NOT a meaningless thing, as you two would imply. That would be analogous to a person taking a cash advance on one credit card, to pay off the balance on another one. And because they have to borrow another nearly 37 trillion yen, there is less money to spend on things like defense, pensions, etc. In fact, if you do the math, they are actually borrowing over 38% of the budget just to make things balance -- so do not be fooled by the 25% figure. (That is just the part going to debt-servicing.) And the possibly most concerning things about this is they still have to borrow over 38% of spending, even after the bump in the consumption tax.

3 ( +4 / -1 )

jerseyboy,

Guy and fxgai -- what parrallel universe version of economics did you guys learn?

Whoah man, don't put me together with Guy_Jean!

The point is that it is often mistakenly said that Japan pays 50% of it's tax revenues to pay interest on the debt, or 25% of it's budget goes to pay interest on the debt. But actually it's not just interest, but rolling over principal amounts too. The debt apologists are right on that point.

Of course they have to include the principal amount. And the fact that Japan is having to issue more debt just to re-pay old debt is NOT a meaningless thing, as you two would imply.

I agree, it's not a good situation. But it'd be twice as bad if it were just interest alone eating up 50% of tax revenues.

And because they have to borrow another nearly 37 trillion yen, there is less money to spend on things like defense, pensions, etc.

Well the BOJ is monetizing the debt, so the government can borrow and spend as much as it likes. So long as confidence in the yen isn't completely lost like it was when they did this in Zimbabwe and elsewhere, that is. Fingers crossed, as always.

And the possibly most concerning things about this is they still have to borrow over 38% of spending, even after the bump in the consumption tax.

Absolutely. That's what I said above - they are borrowing more money than it takes to pay for the entire social security budget. Good while it lasts...

1 ( +1 / -0 )

Whoah man, don't put me together with Guy_Jean

Huh? Here's Guy's post and your response

The Japanese Ministry of Finance, for reasons known only to them, includes the amount rolled over from maturing bonds into newly issued bonds in their calculation of "debt-servicing". The true amount spent on debt-servicing (aka interest payments) is a small fraction of what they claim.

On this point, you are absolutely correct. The interest payments amounts to something like 11% currently, not the frequently quoted 25%.

But he is not "absolutely correct" because he has created his own definition of "debt -servicing (aka interest payments)" that is sheer falacy and he is stating it here simply so the un-educated will believe Japan's draconian level of debt is not a concern. Anyone with even a rudimentary knowledge of economics knows the true definition of debt-servicing costs.

-1 ( +0 / -1 )

Huh? Here's Guy's post and your response

Yeah, but please, I don't want to be lumped together with Guy_Jean!

I meant only to say it is correct that interest payments alone are not a quarter of the budget, they are less. Indeed total debt-servicing costs are a quarter, and this is horrible (especially considering the huge deficit financing they are doing to put together this budget). But things would be even worse if interest payments alone were a quarter of the budget, that would imply total debt-servicing costs were even higher than they are.

Mind you the way they are going they will get to that place sooner or later.

Now can I please be separate from Guy_Jean?

1 ( +1 / -0 )

Mind you the way they are going they will get to that place sooner or later.

After more than 20 years of Doomers screaming about what is going to happen "sooner or later" not happening maybe you should change that to "sooner or later or actually never".

DEFINITION of 'Debt Service' The cash that is required for a particular time period to cover the repayment of interest and principal on a debt.

Exactly. And rolling over the principal means you are not repaying it and therefore not servicing it.

he is stating it here simply so the un-educated will believe Japan's draconian level of debt is not a concern

It's only "draconian" if you don't understand double-entry bookkeeping and accounting. That liability of the Japanese government is somebody's asset. If people don't like government liabilities they are free to hand over their assets to me and I will take care of them. They can be Greece and I will be Germany.

-3 ( +1 / -4 )

maybe you should change that to "sooner or later or actually never"

Well, draw a trajectory of the debt and the interest in your head. 37 trillion yen of extra debt each year, extra interest to be paid on it. What am I missing that makes it unlikely that interest will one day become a quarter of the budget, if things continue as they are?

It's only "draconian" if you don't understand double-entry bookkeeping and accounting.

Lots of people don't. At the end of the day, people act in accordance with their beliefs, not in accordance with what your accounting textbook says. I imagine they had accounting textbooks down there in Zimbabwe too.

That liability of the Japanese government is somebody's asset.

Today it's increasingly the BOJ's. And what of the BOJ's liabilities?

And another thing, the size of the government's liabilities does not equal the size of the money supply.

1 ( +1 / -0 )

I agree with Jerseyboy on the debt servicing. Jean assumes that we can continuously keep rolling over the principle but once this in no longer feasible, the principle you are paying back on those old bonds is certainly part of debt servicing... unless you default or completely monetise the debt overnight (at which point there will probably be riots in the streets and you will never be able to borrow again).

1 ( +2 / -1 )

Call the debt problem what you want. I just have one question: almost a quarter of the entire budget is devoted to "paying" for this debt-related servicing: can Japan use that money, right now, for social services, defense, pension payments and the like? No, it cannot. So that means 25 out of every 100 yen the government brings in is dead money, but Japan still needs more money, even after the sales tax hike which threw the economy back into recession!

And, now and for every year to come, they borrow much, much more, which only adds to the debt pile. Is this a good thing, the fact that next year more than 25 yen out of every 100 will become "dead money?" I don't think so...

As for "bringing more women into the workforce" this hardly equates to an improved economic situation. I'm all for women working if they wish to do so, but more women in the workforce and hunting for jobs who weren't there the year before means....more competition for jobs, lower pay in general for men (since a women who secures a job tends to receive less pay overall than their male counterparts in Japan), as well as an increase in lower paying part-time, "temp" or "contract" work (the latter of which used to be done by full-time male workers for a higher wage.)

I'll not even go into the societal costs of women in the workforce (delayed marriage and fewer babies, higher stress levels and less parental oversight, etc...) And don't forget that every year, Abe sneaks in an increase in pension contribution withholding, higher monthly unemployment insurance premiums, over-40 "nursing insurance" charges and rising health insurance deductions from one's paycheck mean less real spending power for the average wage earner...oh, and did I mention there's to be 2% sales tax increase again next year??

Abenomics! Hooray??

1 ( +2 / -1 )

It's only "draconian" if you don't understand double-entry bookkeeping and accounting. That liability of the Japanese government is somebody's asset. If people don't like government liabilities they are free to hand over their assets to me and I will take care of them. They can be Greece and I will be Germany.

Guy -- LOL. I do fully understand "double-entry booking". Unfortunately you don't seem to really understand the implications of it. But luckily M3M3M3 does:

I agree with Jerseyboy on the debt servicing. Jean assumes that we can continuously keep rolling over the principle but once this in no longer feasible, the principle you are paying back on those old bonds is certainly part of debt servicing... unless you default or completely monetise the debt overnight (at which point there will probably be riots in the streets and you will never be able to borrow again).

Or did you miss the couple of times the Republican's in the U.S. Congress almost pushed the U.S. government into default last year? By your own numbers, if principle was not included in debt servicing, Japan's borrowing rate would be more like 11% of the budget, rather than at the staggering level it is. Rolling over debt is simply kicking the can down the road, and there is nothing positive about that in a rapidly aging and shrinking economy, facing higher social costs. Which is why the major ratings services keep lowering Japan's credit rating. But, they probably don't understand "double-entry booking".

0 ( +2 / -2 )

Which is why the major ratings services keep lowering Japan's credit rating.

And those would be the same ratings agencies that gave US sub-prime mortgage bonds AAA ratings. And never saw any problems, and never lowered the ratings.

0 ( +1 / -1 )

Rather, even the same ratings agencies that gave crappy assets AAA ratings can see that Japan has problems. Methinks it is not them that is missing something here.

0 ( +1 / -1 )

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