FY 2025 Budget Marks Record High

Shigeru Ishiba Cabinet approved on December 27th the draft of FY 2025 budget, which marked ever largest amount of 115 trillion and 541.5 billion yen (732 billion dollar). Price inflation caused increase of tax revenue, which led bold spendings of the government. However, the government has not get rid of the trend, which had swollen in emergency of COVID-19. 

The greatest budget that passed the Diet was 114 trillion yen for FY 2023. FY 2024 budget was reduced from the previous year to 112 trillion yen. FY 2025 budget gets back to the tendency of budget inflation with increased spendings. The spendings in FY 2025 exceeded FY 2024 by about 3 trillion yen.

 

Each spendings for social security, defense and reimbursement for Japanese governmental bonds (JGB) marked new record. The government calculated necessary payment for social security in FY 2025 to be 38.2 trillion yen, increasing by 558 billion yen from FY 2024. Aging society overrides saving efforts in revision of subsidy for expensive medical treatment or discounting drug prices.

 

Accumulation in defense budget is requirement for enhancing security capability, succeeded from Fumio Kishida administration. It amounts to 8.7 trillion yen for FY 2025, going beyond 8 trillion for the first time. Defense budget is focusing on developing standoff missiles, which is called enemy’s base striking capability, exercise for Aegis information system and improvement of treatment for Japan Self-defense Force’s personnel. The government aims at 43 trillion yen in total of defense budget between FY 2023 and FY 2027 to implement 2 percent target against GDP.

 

Spendings for reimbursement of JGB is watched closely every year. JGB occupies most share of total debt of national and local governments, which amounts to 1,200 trillion yen. Solvency of Japanese government affects credibility of Japan. With expectation of rise in tax revenue, the government cut down on the issuance of JGB below 30 trillion yen in FY 2025.

 

The reimbursement for JGB issued in the past, meanwhile, showed a hike. Announcement of the Bank of Japan for consecutive raising of interest rate caused increase of long-term interest rate. The Ministry of Finance supposes the rate for JGB to rise from current 1.9 percent to 2.0 percent. The cost for interest rate rose by 832 billion yen from previous year, going up to 10.5 trillion yen in FY 2025. The reimbursement for FY 2025 will be 17.3 trillion yen, increasing by 400 billion yen.

 

An unusual factor in FY 2025 is that there is no guarantee for the budget bill to pass the Diet. The leading coalition does not have simple majority in the House of Representatives. It is expected that there will be negotiation with some opposition parties to get support on the budget bill. The opposition parties will propose some demands in the budget, which may cause further increase in the spendings. The budget draft for FY 2025 is still in unstable condition.

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