Japan’s cabinet recently approved a record-breaking budget of ¥115.5 trillion (approximately $732 billion) for the fiscal year commencing April 2025. This decision presents a significant challenge for Prime Minister Shigeru Ishiba’s minority government, testing its ability to secure parliamentary approval for the ambitious proposal.
The budget plan, unveiled on Friday, represents a 2.6% increase compared to the current fiscal year. It anticipates a record ¥78.4 trillion in tax receipts, enabling a substantial 19% reduction in new bond issuance. This substantial increase in tax revenue is attributed to factors like the phasing out of an income tax cut and the impact of inflation, according to a finance ministry official.
Since losing its lower house majority in the October election, Ishiba’s coalition government has been compelled to engage in negotiations with opposition parties to gain support for its policy initiatives. To secure the backing of the Democratic Party for the People (DPP) for an economic stimulus package, the coalition conceded to raising the ceiling on tax-free income during the annual tax reform process.
However, subsequent disagreements regarding the specific level of the new tax ceiling have cast doubt on the DPP’s continued support for the coalition’s policies. This gives the DPP significant leverage, potentially threatening to withhold support for the main budget for the upcoming year. The DPP has indicated its desire for further discussions with the coalition in the new year concerning the tax ceiling.
Alternatively, Prime Minister Ishiba could seek support from the opposition Japan Innovation Party to ensure the passage of next year’s budget by March. This Osaka-based party advocates for universal free high school education and school lunches, a proposal the coalition has pledged to consider. Successfully navigating these complex political negotiations is crucial for the Ishiba government.
This budget approval comes as Prime Minister Ishiba faces increasing political pressure. A recent public opinion poll conducted by the Nikkei newspaper and TV Tokyo revealed that his disapproval rating has surpassed his approval rating. Furthermore, Ishiba has faced criticism for his handling of international relations, including perceived casualness at summits in South America and initial difficulties in securing a meeting with US President-elect Donald Trump. While Trump has recently expressed willingness to meet with Ishiba, potentially before the US presidential inauguration on January 20th, these challenges underscore the delicate political landscape Ishiba is navigating.
The proposed budget allocates approximately ¥68.2 trillion for general spending, including a record ¥8.5 trillion for defense, marking a significant 9.7% increase. Social security spending is projected at ¥38.3 trillion, compared to ¥37.7 trillion in the current fiscal year. Debt-servicing costs are estimated at around ¥28.2 trillion, a 4.5% rise, with an accumulated interest rate set at 2%, higher than the current year’s 1.9%. Transfers to regional and local governments are budgeted at ¥19.1 trillion, reflecting a 7.3% increase.
The government’s revenue projections include ¥78.4 trillion in tax income, a notable increase from this year’s ¥69.6 trillion, partially attributed to inflation and policy adjustments. The plan outlines the issuance of ¥28.6 trillion in new government bonds, a 19% decrease. Other income sources are expected to contribute ¥8.5 trillion to the budget. Parliamentary debate on the budget for the next fiscal year is scheduled to commence in January. The outcome of these deliberations will be crucial for the Ishiba government and the future direction of Japan’s fiscal policy. The significant increase in the budget underscores Japan’s commitment to addressing key economic and social challenges.
