Cabinet Approves 2025 Supplemental Budget

Sanae Takaichi Cabinet approved 2025 supplemental budget on November 28th, which spendings in general account of national budget amounted to 18.3 trillion yen. The defense budget is expected to reach its target of 2 percent of GDP as a sum with main budget activated in the spring 2025. The supplemental budget still relies on 11.6 trillion yen of issuance of new governmental bonds, which covers six-tenths of the spendings.

The supplemental budget bill is expected to submit to the Diet and will pass it by the end of the session on December 17th. The leading coalition by the Liberal Democratic Party (LDP) and Japan Innovation Party (JIP) recently achieved a simple majority in the House of Representatives, as the LDP included three independent lawmakers within its parliamentary group. Even though the coalition still does not have a majority in the Upper House, the budget will pass the Diet with constitutional superiority of the Lower House.

 

Among the spendings, 1.1 trillion yen is allocated for defense. The government already appropriated 9.9 trillion yen for defense in main budget of FY 2025. Its sum, 11 trillion yen, will occupy 2 percent of GDP. In fact, real GDP of Japan was 546 trillion yen in 2022. Although former Fumio Kishida administration set the target of 2 percent of GDP by FY 2027, Takaichi administration is going to reach it two years earlier than the original schedule.

 

To support households that are suffering from price inflation, the national government issues 2 trillion yen to local governments. It also prepares 529 billion yen for subsidy on people’s spendings for electricity and gas between January and March in 2026. Distribution of 20 thousand yen for each family with a child is going to cost 367 billion yen for the supplemental budget.

 

A supplemental budget beyond 18 trillion yen is unusually large in its size. Although it had usually been suppressed at several trillion yen, supplemental budget was enlarged by COVID-19 to support paralyzed economy. Even after the COVID ceased, the size of supplemental budget was maintained beyond 10 trillion yen.

 

The government expects 2.8 trillion yen of surplus in tax revenue from original estimation in FY 2025. While it also assumes 1 trillion yen of revenue out of tax and 2.7 trillion yen of surplus from FY 2024 budget, the government still needs 11.6 trillion yen of issuance of governmental bonds. The bonds consist of 8.1 trillion yen of deficit-covering bonds and 3.5 trillion yen of construction bonds.

 

Takaichi administration has many agenda to maintain its political basis. It needs to implement policies like gasoline tax cut or subsidy for high school students which JIP insists. Raising threshold for imposing income tax, which was requested by the Democratic Party for the People (DPP), will reduce tax revenue. It is still unclear how Takaichi administration will find fiscal recourses for them.

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