Japan to unveil record $943 billion budget to ensure post

© Reuters. FILE PHOTO: A train of the Yurikamome line,FXCM MT4 foreign exchange app download a driverless automatic train system, runs with the city skyline in the background, in Tokyo, Japan, April 21, 2021. Picture taken April 21, 2021. REUTERS/Kim Kyung-Hoon

By Takaya Yamaguchi

TOKYO (Reuters) -Japan's government is set to unveil its largest annual budget on Friday with $943 billion in spending for the fiscal year beginning next April, further straining the industrial world's heaviest debt, a draft plan seen by Reuters showed.

The first annual budget to be compiled by Prime Minister Fumio Kishida's government got a boost from COVID-19 countermeasures, social security spending to support a fast-ageing population and military outlays to deal with threats from China.

The 107.6 trillion yen ($943 billion) annual budget underscores the challenge for Kishida to realise "new capitalism" with a cycle of growth and wealth distribution and restore tattered public finances.

It would mark a 1% rise from this year's initial level, rising 10 years in a row.

From Europe to America, policymakers globally are unwinding crisis-mode stimulus but Japan's fragile economic recovery has kept it from following suit, straining public debt that tops twice the size of its economy.

In a show of will to improve public finances, Kishida's government will likely trim new borrowing next fiscal year to 36.93 trillion yen from an initially planned 43.6 trillion yen for this year, the draft showed.

Excluding mandatory expenditure such as education and public works, Japan's budget has been stretched, leaving little room for spending in growth areas like green and digital transformation.

The spending plan needs be approved by parliament by this fiscal year-end next March.

It will be rolled out along with the first extra budget for this fiscal year as a combined 16-month budget aimed for seamless spending to secure post-COVID recovery.

Japan's economy, the world's third largest, contracted an annualised 3.6% in the July-September quarter following a resurgence of COVID-19 cases, putting a drag on private consumption that makes up more than half of the economy.

In a glimmer of hope, tax revenue is expected to grow by 7.79 trillion yen from this year's initial estimate to reach a record 65.24 trillion yen, the draft showed, in a sign of rising corporate profit and household income.

($1 = 114.1100 yen)

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