<TABLE cellSpacing=0 cellPadding=0 width=452 border=0><TBODY><TR><TD vAlign=top width=452 colSpan=2>Published December 25, 2008
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Aso tries to rocket-propel the economy
Japan approves record-spending budget in bid to ward off downturn but fiscal problems loom
By ANTHONY ROWLEY
IN TOKYO
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JAPANESE Prime Minister Taro Aso's Cabinet yesterday approved a record 88.55 trillion yen (S$1.4 trillion) budget for fiscal 2009 to deal with what finance ministry officials last night called a far more rapid and severe downturn than expected in the economy.
The spending will blow a big hole in fiscal consolidation plans and calls for a major increase in bond issuance by the already heavily indebted government.
With the economy deteriorating almost by the day as both exports and domestic demand collapse under the impact of the global crisis, Japan is faced with the threat or rising unemployment and the budget aims at preserving as many jobs as possible.
Somewhat dramatically, Mr Aso illustrated the government's stimulus plans with a diagram of a three-stage rocket.
But the government faces a major increase in its contributions to state pension funds next year. The budget measures failed to reassure financial markets and Tokyo's benchmark Nikkei 225 stock average fell by 2.4 per cent yesterday as investors appeared to doubt the government's ability to pull the economy out of its tailspin.
Mr Aso's government and that of his immediate predecessor, Yasuo Fukuda, have already approved stimulus measures totalling 75 trillion yen in recent months to soften the blow of economic recession.
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</TD></TR></TBODY></TABLE>Supplementary budgets to finance these programmes are now being rushed through Parliament, which will reconvene at an 'unprecedented' early date next month to approve the emergency spending.
The economy is set to contract by 0.8 per cent in real terms in the current fiscal year ending March 31 2009 and to grow by zero per cent in the following fiscal year. This will cause tax revenues to plunge by a projected 7.5 trillion yen to 46.1 trillion yen in fiscal 2009 compared with the current year.
As a result, the government will be forced to push up its new bond issuance by 7.95 trillion yen to 33.3 trillion yen - the first such increase in nearly a decade.
Including the need to re-fund existing debt, the government will be forced to issue a total of 132 trillion yen of bonds next year at a time when officials admit that funding conditions are deteriorating.
The boost in new bond issuance is estimated to boost Japan's ratio of outstanding government debt to GDP - already by far the highest in the OECD area - from 150 per cent to 155 per cent.
'Japan's economy is getting worse much faster than expected and so we have decided to take bold and decisive action,' a finance ministry official said.
At the same time, he warned that economic conditions could get worse, possibly forcing further actions by the government. Of the 75 trillion yen of emergency programmes announced so far, only 12 trillion yen or around 2 per cent of annual GDP is in the form of actual on-budget fiscal spending.
This will go in the main towards financing tax reliefs, measures to boost job creation and steps to boost the housing market. The remaining 63 trillion yen is off-budget supports for banks and financial institutions as well as for the all-important small and medium sized enterprise sector. Most of these funds will be raised in the market by official institutions and guaranteed by the government.
The government is being forced to raid various 'special accounts' also in order to close the yawning gap between projected spending of 88.55 trillion yen and tax revenues of 46 trillion yen in fiscal 2009. For example, nearly five trillion yen will have to be transferred for general spending from the so-called 'second budget' which is normally used only for funding public works projects.
'Our fiscal situation is very severe,' an official noted, saying that the government is having to strike a very delicate balance between preventing the economy from entering a severe recession and preventing major damage to the fiscal position that will be hard to remedy once recovery is achieved.
</TD></TR></TBODY></TABLE>
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Aso tries to rocket-propel the economy
Japan approves record-spending budget in bid to ward off downturn but fiscal problems loom
By ANTHONY ROWLEY
IN TOKYO
<TABLE class=storyLinks cellSpacing=4 cellPadding=1 width=136 align=right border=0><TBODY><TR class=font10><TD align=right width=20>
</TD><TD>Email this article</TD></TR><TR class=font10><TD align=right width=20>
</TD><TD>Print article </TD></TR><TR class=font10><TD align=right width=20>
</TD><TD>Feedback</TD></TR></TBODY></TABLE>JAPANESE Prime Minister Taro Aso's Cabinet yesterday approved a record 88.55 trillion yen (S$1.4 trillion) budget for fiscal 2009 to deal with what finance ministry officials last night called a far more rapid and severe downturn than expected in the economy.
The spending will blow a big hole in fiscal consolidation plans and calls for a major increase in bond issuance by the already heavily indebted government.
With the economy deteriorating almost by the day as both exports and domestic demand collapse under the impact of the global crisis, Japan is faced with the threat or rising unemployment and the budget aims at preserving as many jobs as possible.
Somewhat dramatically, Mr Aso illustrated the government's stimulus plans with a diagram of a three-stage rocket.
But the government faces a major increase in its contributions to state pension funds next year. The budget measures failed to reassure financial markets and Tokyo's benchmark Nikkei 225 stock average fell by 2.4 per cent yesterday as investors appeared to doubt the government's ability to pull the economy out of its tailspin.
Mr Aso's government and that of his immediate predecessor, Yasuo Fukuda, have already approved stimulus measures totalling 75 trillion yen in recent months to soften the blow of economic recession.
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The economy is set to contract by 0.8 per cent in real terms in the current fiscal year ending March 31 2009 and to grow by zero per cent in the following fiscal year. This will cause tax revenues to plunge by a projected 7.5 trillion yen to 46.1 trillion yen in fiscal 2009 compared with the current year.
As a result, the government will be forced to push up its new bond issuance by 7.95 trillion yen to 33.3 trillion yen - the first such increase in nearly a decade.
Including the need to re-fund existing debt, the government will be forced to issue a total of 132 trillion yen of bonds next year at a time when officials admit that funding conditions are deteriorating.
The boost in new bond issuance is estimated to boost Japan's ratio of outstanding government debt to GDP - already by far the highest in the OECD area - from 150 per cent to 155 per cent.
'Japan's economy is getting worse much faster than expected and so we have decided to take bold and decisive action,' a finance ministry official said.
At the same time, he warned that economic conditions could get worse, possibly forcing further actions by the government. Of the 75 trillion yen of emergency programmes announced so far, only 12 trillion yen or around 2 per cent of annual GDP is in the form of actual on-budget fiscal spending.
This will go in the main towards financing tax reliefs, measures to boost job creation and steps to boost the housing market. The remaining 63 trillion yen is off-budget supports for banks and financial institutions as well as for the all-important small and medium sized enterprise sector. Most of these funds will be raised in the market by official institutions and guaranteed by the government.
The government is being forced to raid various 'special accounts' also in order to close the yawning gap between projected spending of 88.55 trillion yen and tax revenues of 46 trillion yen in fiscal 2009. For example, nearly five trillion yen will have to be transferred for general spending from the so-called 'second budget' which is normally used only for funding public works projects.
'Our fiscal situation is very severe,' an official noted, saying that the government is having to strike a very delicate balance between preventing the economy from entering a severe recession and preventing major damage to the fiscal position that will be hard to remedy once recovery is achieved.
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