Japan hikes defence spending in record US$1tr budget

Japan’s cabinet endorsed on Tuesday a record-high 92.6 trillion yen (US$1.02 trillion) general budget for the coming fiscal year aimed at buoying growth through more public works spending while raising defence outlays to counter tensions with China.

The 4.75 trillion yen (US$52.5 billion) in proposed defence spending, up 0.8 per cent from last year, is the first such increase in 11 years and is partly aimed at beefing up Japan’s coastal and marine surveillance around islands also claimed by China and Taiwan.

Prime Minister Shinzo Abe has pledged to do whatever it takes to get the economy out of recession and restore sustainable growth, through both strong stimulus spending and monetary easing.

Including a supplementary budget to help cover costs through March 31, the government has set its spending plans through March next year, said Chief Cabinet Secretary Yoshihide Suga told reporters.

“I think it’s a lean budget that Prime Minister Abe was aiming at,” Suga said. “We compiled the budget plan with a sense of urgency that there was not a single day to waste.”

Abe, a staunch nationalist who came to office following a landslide victory by his Liberal Democratic Party last month, also favours a firm stance toward China in a dispute over uninhabited islands in the East China Sea that flared last year, under the previous, Democratic Party-led administration.

Apart from that challenge, Japan has a huge and rising public debt and surging social welfare costs thanks to its fast-aging population.

Nearly half the budget for fiscal this year, which begins April 1, will be financed by new government bonds. Japan will spend almost a quarter of it on servicing its national debt, which has ballooned to more than twice the size of its economy.

Social security spending will rise 10 per cent to 29.12 trillion yen.

The government is earmarking 25 trillion for fiscal 2011-2015 for reconstruction from the March 2011 earthquake and tsunami disasters that devastated Japan’s northeastern coast and brought on the worst nuclear accident since Chernobyl.

Outlays on public works will jump 15.6 per cent to 5.3 trillion yen (US$58.6 billion), following through on campaign promises to hike spending on public works such as the country’s aging roads and tunnels.

The Liberal Democrats relied heavily on construction spending to reward supporters and fuel growth in the past, but that formula may have outgrown its usefulness, critics say.

The country’s success in fostering sustainable growth and emerging from over two decades of economic stagnation, Abe has said, also hinges on tax and government reforms and other policies aimed at restoring the country’s lagging competitiveness.