Japan's Cabinet approved Friday a 107.60 trillion yen ($940 billion) draft budget for fiscal 2022, the largest ever, to finance measures against the coronavirus pandemic, swelling social security costs and record defense spending.
Compared to fiscal 2021's initial 106.61 trillion yen, the budget for the new fiscal year starting in April will be a record high for the 10th year in a row.
The largest policy spending component is social security, growing by around 440 billion yen to a record 36.27 trillion yen and accounting for more than a third of the overall budget, as the aging population continues to push up medical costs.
New state bonds worth 36.93 trillion yen will be issued, down from the fiscal 2021 initial budget's 43.60 trillion yen, but the government remains dependent on borrowing to fund its expenditures despite the country's worst fiscal health among major economies.
The budget includes 24.34 trillion yen in debt-servicing costs, up from 23.76 trillion yen a year ago.
"Although we should take all possible countermeasures against the pandemic for the time being, we need to address the structural problem of an imbalance between social security's public benefits and financial burdens, which Japan's finances have been facing," Finance Minister Shunichi Suzuki told a press conference.
"Finance is the basis for a nation's credibility," Suzuki added.
The government of Prime Minister Fumio Kishida expects a record-high tax revenue of 65.24 trillion yen, larger than 57.45 trillion yen originally projected for the current fiscal year when compiling the year's initial budget, as the government expects the domestic economy to continue recovering from a pandemic-triggered slump.
Supported by better-than-expected corporate profits so far despite repeated resurgences of virus infections, the tax revenue estimate for fiscal 2021 was later upwardly revised to 63.88 trillion yen when a supplementary budget was drawn up earlier this month to finance the government's latest economic stimulus package.
Kishida's administration will submit the draft budget to an ordinary Diet session expected to be convened on Jan. 17, aiming to have it enacted by the end of March.
Defense outlays will rise to the largest-ever amount of 5.40 trillion yen, a record high for the eighth successive year, reflecting Japan's efforts to promote development of new technologies and enhance capabilities in new security domains such as cyberspace and outer space in the face of China's assertiveness and North Korea's missile threats.
The national security costs include 291.10 billion yen of research and development expenditures such as a next-generation fighter jet development, rising 1.1 percent from the previous year and up for the 10th consecutive year.
The government will set aside 5 trillion yen as a reserve fund for future responses to the pandemic, the same amount appropriated for the current fiscal year. The funds can be spent without Diet approval.
The number of new COVID-19 cases has stayed low in Japan after dropping sharply in late August on the back of progress in vaccinations, but the country is bracing for another virus resurgence as more cases of community infections of the Omicron variant have been reported in western Japan and daily cases have shown gradual increases in Tokyo recently.
Using the reserve fund, the government will "prepare for unexpected changes of situation including infection spread triggered by virus variants," a Finance Ministry official said.
The government debt is expected to grow to 1,026.50 trillion yen by the end of fiscal 2022, topping the 1,000 trillion yen threshold for the first time, compared to an estimated 990.30 trillion yen at the end of fiscal 2021.
The government has maintained the goal of bringing its primary balance -- tax revenue minus expenses other than debt-servicing costs -- into the black by fiscal 2025, but a primary deficit of 13.05 trillion yen is expected for fiscal 2022, improving from the 20.36 trillion yen deficit under the fiscal 2021 initial budget.
Suzuki said the goal does "not need to be reviewed at this point."