TOKYO, Dec 24 (Reuters) Japan's cabinet today approved an 82.91 trillion yen budget for the next fiscal year that reduces new borrowing to the lowest level in a decade.
The government's final draft for the initial general account budget for fiscal 2007/08 starting in April was 4 percent higher than the current fiscal year, the first rise in two years.
Next year's budget -- the first that Prime Minister Shinzo Abe will submit to parliament -- has been seen as a test of the new premier's reformist intentions.
''It is very significant that we were able to use larger-than-expected (tax) revenues for restoring fiscal health, and not for wasteful spending,'' Finance Minister Koji Omi told reporters.
Omi added that the country faces rising social security costs in light of an ageing society, and noted the need to start serious discussions next fall on tax reforms including the consumption duty.
''There is still a long way to achieve fiscal consolidation,'' Omi said.
Last-minute negotiations over the past week produced only minor changes, so the final draft was largely the same as a blueprint issued by the Ministry of Finance on Wednesday. The government will submit bills on the budget proposals to parliament in January.
Japan plans to trim overall spending on defence and overseas aid as part of efforts to get its huge pubic debt under control, but will boost outlays on ballistic missile defence to cope with a growing threat from North Korea.
Defence spending will fall by 0.3 percent to 4.80 trillion yen in fiscal 07/08, while the general account budget for official development assistance (ODA) will decline 4 per cent from this year to 729.3 billion yen, the lowest since fiscal year 1988/89.
New issuance of Japanese government bonds (JGBs) to help finance the budget is set to fall to 25.43 trillion yen, from 29.97 trillion yen in the initial budget for this year.
''The cut in new debt issuance made a very good impression,'' said Takeshi Minami, chief economist at Norinchukin Research Institute.
The sharp cut in borrowing was made possible by soaring tax receipts as many Japanese companies have posted record profits.
The budget puts tax revenue in 2007/08 at 53.47 trillion yen, which would be the highest in 10 years if achieved, and up from 45.88 trillion yen in this year's initial budget.
Still, Japan's outstanding public debt, including that of local governments, is expected to rise to around 773 trillion yen by the end of next fiscal year, equivalent to 148 per cent of GDP and by far the highest among industrialised nations.
The current economic recovery, which in November became the country's longest-running expansion in the post World War II era, has prompted expectations for a rise in interest rates and this could cause the government's interest payment burden on the debt to surge.
The Bank of Japan ended its zero-interest rate policy in July and is poised to further raise rates on the back of the steady economic expansion.
''As the outstanding debts are more than 600 trillion yen (on the central-government level), whether the low yields on the government bonds can be maintained amid the rising trend in interest rates is an important point,'' Minami said.
Long-term rates have recently been hovering at relatively low levels. The yield on the benchmark 10-year government bonds stands at around 1.6 per cent.
REUTERS SSC HS0954
The government's final draft for the initial general account budget for fiscal 2007/08 starting in April was 4 percent higher than the current fiscal year, the first rise in two years.
Next year's budget -- the first that Prime Minister Shinzo Abe will submit to parliament -- has been seen as a test of the new premier's reformist intentions.
''It is very significant that we were able to use larger-than-expected (tax) revenues for restoring fiscal health, and not for wasteful spending,'' Finance Minister Koji Omi told reporters.
Omi added that the country faces rising social security costs in light of an ageing society, and noted the need to start serious discussions next fall on tax reforms including the consumption duty.
''There is still a long way to achieve fiscal consolidation,'' Omi said.
Last-minute negotiations over the past week produced only minor changes, so the final draft was largely the same as a blueprint issued by the Ministry of Finance on Wednesday. The government will submit bills on the budget proposals to parliament in January.
Japan plans to trim overall spending on defence and overseas aid as part of efforts to get its huge pubic debt under control, but will boost outlays on ballistic missile defence to cope with a growing threat from North Korea.
Defence spending will fall by 0.3 percent to 4.80 trillion yen in fiscal 07/08, while the general account budget for official development assistance (ODA) will decline 4 per cent from this year to 729.3 billion yen, the lowest since fiscal year 1988/89.
New issuance of Japanese government bonds (JGBs) to help finance the budget is set to fall to 25.43 trillion yen, from 29.97 trillion yen in the initial budget for this year.
''The cut in new debt issuance made a very good impression,'' said Takeshi Minami, chief economist at Norinchukin Research Institute.
The sharp cut in borrowing was made possible by soaring tax receipts as many Japanese companies have posted record profits.
The budget puts tax revenue in 2007/08 at 53.47 trillion yen, which would be the highest in 10 years if achieved, and up from 45.88 trillion yen in this year's initial budget.
Still, Japan's outstanding public debt, including that of local governments, is expected to rise to around 773 trillion yen by the end of next fiscal year, equivalent to 148 per cent of GDP and by far the highest among industrialised nations.
The current economic recovery, which in November became the country's longest-running expansion in the post World War II era, has prompted expectations for a rise in interest rates and this could cause the government's interest payment burden on the debt to surge.
The Bank of Japan ended its zero-interest rate policy in July and is poised to further raise rates on the back of the steady economic expansion.
''As the outstanding debts are more than 600 trillion yen (on the central-government level), whether the low yields on the government bonds can be maintained amid the rising trend in interest rates is an important point,'' Minami said.
Long-term rates have recently been hovering at relatively low levels. The yield on the benchmark 10-year government bonds
REUTERS SSC HS0954
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