Draft of FY2026 Budget Bill Approved

Sanae Takaichi Cabinet approved FY2026 main budget bill, which marked a record high in volume of 122 trillion yen, with measures supporting consumers suffering from price inflation, in a cabinet meeting on December 26th. While considering keeping credibility on her bold spendings paying little attention to fiscal balance, Prime Minister Takaichi focused on her own political agenda including accumulation of defense budget. 

Takaichi Cabinet will submit the bill to ordinary session of the Diet which will be convoked on January 23rd. The bill is likely to pass the Diet before the end of March with approval of the leading coalition by the Liberal Democratic Party (LDP) and Japan Innovation Party (JIP), which has a simple majority in the Lower House. Even if the Upper House, in which the coalition does not have a majority, reject the bill, it will pass the Diet with support of constitutional provision that gives the Lower House a priority on budget bill.

 

Total amount of general account in the budget bill is 122.3 trillion yen, exceeding FY2025 main budget by 6.2 percent. Spendings on repayment for governmental bonds which was issued in the past and for interest of those bonds amounted to 31.2 trillion yen with 10.8 percent of increase from previous year. The volume of general account and payment for governmental bonds marked a new record.

 

Takaichi Cabinet allocated 9.03 trillion yen for defense budget, exceeding the line of 9 trillion yen for the first time. Receiving pressure from the United States to increase defense budget, Takaichi actively arranged spendings for introducing unmanned asset defense capability including multi-layered coastal defense system with drones, or enhancement of stand-off defense capability such as missiles to strike vessels. Takaichi administration is going to impose additional income tax to support those defense spendings in FY2027.

 

The spendings for social security has swollen along with development of aged society. As the budget included upsurge of rewards for medical treatments, budget for social security rose to 39.5 trillion yen, marking another record high. Not only aged people are increasing in Japan, cost for medicines and medical equipment is growing significantly. Receiving request from JIP, Takaichi government decided to ask the patients further payment for “over the counter” drugs, which has mostly the same ingredient as registered medicines.

 

The structure of national budget which relies on governmental bonds has not changed. The budget bill assumes newly issued governmental bonds as much as 29.5 trillion yen. The ratio about how much the national budget relies on governmental bonds is 24.7 percent, remaining in a high level, even if it was reduced by 0.7 percentage points from the previous year.

 

Takaichi insists on “responsible and active financing” of national government. However, concerns on credibility of national government are sticking around, as Takaichi has not shown sustainability of active spendings with viable budgetary resources.

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