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FY 2018 budget draft to hit 97.7 trillion yen; 6th straight record high

The general account of the government's fiscal 2018 budget draft is likely to hit some 97.7 trillion yen, increasing for the sixth consecutive year, sources close to the government said.

The total is some 200 billion yen more than the 97.5 trillion yen in the initial fiscal 2017 budget, as Japan's aging population continues to push up social security spending in particular.

In anticipation of a tax revenue increase, the state is expected to issue 33.7 trillion yen worth of government bonds in fiscal 2018. This will be the first time since fiscal 2009 that the amount of bonds to be issued in an initial budget has declined to the 33 trillion yen level.

After coordination between the finance minister and other Cabinet ministers, the Cabinet of Prime Minister Shinzo Abe will officially approve the budget draft on Dec. 22.

The general account outlay will amount to about 58.9 trillion yen. Social security expenses including medical and pension spending is expected to rise by approximately 500 billion yen from the current fiscal year to 33 trillion yen-plus. Defense spending will also increase to about 5.2 trillion yen, the largest amount in history, in response to rising North Korea tensions.

Government debt servicing is estimated to total about 23.3 trillion yen, slightly below the 23.5 trillion yen in the initial fiscal 2017 budget. The estimated interest rate is expected to remain the same as fiscal 2017 at 1.1 percent, reflecting the country's low interest rate policy.

The Finance Ministry and the Internal Affairs and Communications Ministry are nearing an agreement on a plan to slash tax revenues allocated to local governments by about 100 billion yen to approximately 15.5 trillion yen in anticipation of increases in local government tax revenues.

The draft estimates central government tax revenue for fiscal 2018 at 59.1 trillion yen, up 1.4 trillion yen from the initial fiscal 2017 budget. Non-tax revenue including payments from the Bank of Japan is estimated at around 4.9 trillion yen, a decrease of 500 billion yen from the initial 2017 budget.

This will be the first time that the central government's tax revenue has surpassed 58 trillion yen since it hit 59.8 trillion yen in fiscal 1991 during the speculation-driven asset bubble.

The government expects the economy to continue to expand next fiscal year and tax revenue, especially corporate taxes, to increase.

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