Japan’s FY25 Draft Budget Still Heavily Relies on Debt; Figure Regarding Govt Bonds Down, Seen as Positive Sign

Yomiuri Shimbun Staff Writers

20:00 JST, December 28, 2024

The record high draft budget for fiscal 2025, which exceeds ¥115 trillion and was approved by the government on Friday, continues a situation in which a large portion of its expenditures heavily rely on debts.

The issuance of government bonds to cover the shortfall in tax revenue can be significantly reduced. However, the situation of relying on debts will not have changed.

“To continue our efforts on spending reform, we have prioritized key policies [in our budget],” said Finance Minister Katsunobu Kato at a press conference on Friday after the draft budget was approved.

As part of efforts to cut spending, the government discontinued the allocation of money to a reserve fund, which started amid the COVID-19 pandemic.

The government has earmarked trillions of yen to the fund every fiscal year since fiscal 2020. Opposition parties criticized allocating money to the fund because it can be used at the government’s discretion without obtaining the Diet’s approval.

Despite the cut, the initial budget for next fiscal year will exceed ¥110 trillion for the third consecutive year.

An increase in spending for social welfare programs is still increasing, reflecting the country’s aging population.

The government minimized the increase by about ¥130 billion through such measures as lowering drug prices and revising a system in which patients’ burdens are reduced when their medical expenses are high.

Despite these measures, spending on social welfare programs increased ¥560 billion from fiscal 2024 to exceed ¥38 trillion.

It is assumed that the Bank of Japan will increase interest rates after the New Year and will continue raising rates.

Further increases of government spending for interest payments on government bonds will be unavoidable for the foreseeable future.

The draft budget will decrease the amount of new government bonds it can issue next fiscal year to ¥28.6 trillion, down ¥6.8 trillion, mainly due to an increase in tax revenue.

The amount dropped below ¥30 trillion for the first time in 17 years. It will also be the second lowest amount since fiscal 2008, when it was ¥25.3 trillion.

The figure can be seen as the only positive sign, but the fiscal 2025 budget continues to rely on debts for a quarter of the government’s revenue.

The government has set a goal of having both the central and local governments be in the black by fiscal 2025.

There is a possibility that the goal can be achieved, but it will prove difficult to realize if part of the supplementary budget that was passed this month is implemented in the fiscal 2025.