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News Navigator: Is it OK for Japan to create its largest budget draft ever?

(Mainichi)

The national government has finalized the budget draft for fiscal 2016, which weighs in at 96.7 trillion yen, the most of any of Japan's fiscal year budget drafts yet. The Mainichi answers common questions readers may have about these growing costs.

    Question: Is it OK for Japan to spend so much on its budget?

    Answer: It is not OK. Tax income in fiscal 2016 is expected to grow to 57.6 trillion yen -- over 3 trillion yen higher than in fiscal 2015 -- thanks to improvements in corporate earnings in major companies helping to boost corporate tax and other revenues, but this will not cover the budget draft of 96.7 trillion yen. Some 40 percent of the cost will be covered through borrowing money. The combined debt of the national and municipal governments is expected to reach over 1.06 quadrillion yen as of the end of fiscal 2016.

    A state where the government is using borrowed money to pay for its policies is known as a "negative" primary balance. The primary balance was 15.4 trillion yen in the red in fiscal 2015. Under a government estimate, even if there were sustained economic activity on the level of Japan's "bubble" years, fiscal 2020's budget would still show a deficit of 6.2 trillion yen.

    Japan has the worst financial health of any developed nation, and for this reason the government decided on a plan in June this year to improve the state of the nation's finances.

    Q: What is the plan?

    A: The goal is, through fiscal 2020, to secure the funds needed for spending on public welfare, education and other programs without incurring any more debt. The government is aiming to keep down rising social welfare costs such as pension payments and medical costs caused by Japan's graying society, but this alone is not enough to lift the primary balance back into the black. The government is also trying to improve the economy and bring in more tax revenue, but if tax revenue does not grow as planned, the government will have to cut back on its services to residents and raise taxes.

    Furthermore, if Japan's seriousness about trying to reduce its debt comes into doubt, investors may decide to dump Japanese government bonds, and their value could plummet. Interest rates could spike, making it even more difficult for Japan to repay its debt and driving the country into bankruptcy. Repairing its financial status is an urgent matter for Japan. (Answers by Hiroshi Miyajima, Business News Department)

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