Japan Govt Adopts Record 115.5-T.-Yen Draft Budget for FY ‘25 (UPDATE 1)

Jiji Press

12:08 JST, December 27, 2024 (updated at 13:30 JST)

Tokyo, Dec. 27 (Jiji Press) — The Japanese government Friday adopted a fiscal 2025 state budget plan with record general-account spending of ¥115,541.5 billion , reflecting surges in social security, defense and debt-servicing costs.

The spending amount exceeded ¥110 trillion for the third straight year. This is the first initial budget plan compiled by the administration of Prime Minister Shigeru Ishiba, who took office in October.

The fiscal 2025 draft budget, adopted at the day’s extraordinary cabinet meeting, will be submitted to next year’s regular session of the Diet, the country’s parliament, expected to be convened in late January.

With no clear prospects for Ishiba’s minority government to have the budget bill enacted before the current fiscal year ends in March next year, it may be forced to increase the spending amount through talks between ruling and opposition parties.

Social security costs, which account for around 30% of the total spending, are set at a record ¥38,277.8 billion .

The government aims to hold down rising social security costs by lowering official drug prices and reviewing the so-called high-cost medical expense benefit system, which caps patients’ out-of-pocket expenditures. But its social security spending will still grow 1.5% from the initial fiscal 2024 budget level due to spending to address the country’s low birthrate and aging population.

In response to the severe security environment, defense expenditures will rise 9.5% to a record ¥8,669.1 billion .

Debt-servicing costs will increase 4.5% to ¥28,217.9 billion , hitting a record high for the fifth straight year. The government sets its assumed interest rate, used to calculate the debt-servicing costs, at 2.0% for fiscal 2025, up from 1.9% for fiscal 2024, in line with rising long-term interest rates following the Bank of Japan’s policy rate hikes.

Tax allocations and other funds to be received by local governments will total a record ¥19,078.4 billion .

Among Ishiba’s key policies, the government will double its budget allocation to ¥200 billion for revitalizing regional communities and to ¥14.6 billion for the Cabinet Office’s disaster prevention-related spending, including an outlay to prepare for establishing a government agency for disaster prevention.

The government will use ¥100 billion for investment in domestic chipmaker Rapidus Corp. as part of its support for the semiconductor and artificial intelligence sectors, a pillar of its growth strategy.

Tax revenue is estimated to total a record ¥78,440 billion . The amount of new Japanese government bond issuance is put at ¥28,649 billion , slipping below ¥30 trillion for the first time in 17 years on an initial budget basis.

Revenue from JGB issues will make up 24.8% of all revenue under the fiscal 2025 budget plan, the lowest level in 27 years. Still, roughly a quarter of the government’s general-account budget is financed by debt.