New Budget Framework for Investments: Work to Achieve Both Growth and Fiscal Discipline

Editorial

15:41 JST, April 25, 2026

To accelerate the growth of the Japanese economy, it is essential to review the rigid approach to budget formulation. There is need to devise a new mechanism that achieves both economic growth and fiscal consolidation.

Discussions are in full swing regarding the “Basic Policy on Economic and Fiscal Management and Reform” that the government is set to finalize this summer. To advance “responsible and proactive public finances” advocated by Prime Minister Sanae Takaichi, the government intends to fundamentally review the budget formulation process and fiscal consolidation targets.

One of the main items on the agenda is establishing a new budget framework that ensures funding for investments over multiple fiscal years. The investments will be used to improve the country’s resilience against potential crises as well as promote growth.

Article 86 of the Constitution explicitly states that the Cabinet shall prepare a budget for each fiscal year, establishing the principle of single-year budgeting. This system safeguards fiscal democracy by requiring the Diet to deliberate and pass the budget for each fiscal year.

However, the downsides of this system, such as the forced spending of unused funds at the end of the fiscal year, have long been pointed out.

In recent years, the number of sectors that require massive, long-term investments — such as semiconductors, energy and defense — has been increasing. Nevertheless, due to the constraints of the principle of single-year budgeting, it has been difficult to allocate funds appropriately. As a result, the use of supplementary budgets to address necessary expenditures has become the norm.

Under the new budget formulation policy, it would be vital to provide businesses with a clear outlook on the scale of budget allocations over the medium and long term, thereby encouraging active investments.

However, the basic premise is that fiscal discipline must not be compromised. If the Diet’s oversight function is undermined, the budget will continue to balloon, and the burden could be passed on to future generations.

It is necessary to establish clear criteria to prevent the budget framework for investments from becoming bloated and create a highly transparent system to manage project progress. It is also essential to put a system in place to evaluate projects so that the framework will not become a breeding ground for wasteful projects that prioritize ministry interests.

Setting the goal of achieving fiscal consolidation will become even more critical also in order to secure funding for the new budget framework for investments.

The central government intends to prioritize steadily reducing the ratio of outstanding debt to gross domestic product over achieving a primary balance surplus for central and local governments on a single-year basis. The reasoning is that as the economy grows, the debt-to-GDP ratio will decrease.

However, growth is accompanied by rising interest rates, which will also increase interest payments on government bonds. The Finance Ministry has estimated that interest payments in fiscal 2035 could rise to about ¥45 trillion — more than three times the amount in fiscal 2026.

It must not be forgotten that achieving a primary balance surplus is a milestone in the long-term process of reducing massive debt.

(From The Yomiuri Shimbun, April 25, 2026)