Japan's parliament on Wednesday enacted a 13.20 trillion yen ($90 billion) extra budget for the current business year through next March to fund steps to soften the blow of rising prices and aid the economy.

The funds are needed to provide 70,000 yen to low-income households hurt by the cost-of-living crisis, retain subsidies to lower fuel costs until next spring and make the nation more competitive through increased investment in key areas like semiconductors, artificial intelligence and space.

Photo taken Nov. 29, 2023, in Tokyo shows a House of Councillors plenary session after an extra budget for fiscal 2023 was enacted. (Kyodo)

The spending plan cleared the House of Councillors, following its passage through the House of Representatives last week. In a rare move, some opposition parties joined the ruling coalition of the Liberal Democratic Party and the Komeito party to support the budget.

Prime Minister Fumio Kishida has faced a tough time trying to stem falling public support amid a series of scandals hitting Cabinet members, despite his pledge to do all he can to support the inflation-hit economy.

He has also been in the hot seat during parliamentary deliberations on the budget, following recent revelations that multiple factions within the LDP, including Kishida's, underreported income from fundraising parties.

His government's economic package, including a temporary tax cut of 40,000 yen per person that will be implemented next year, has so far done little to turn the tide in his favor.

"We will use all available policy tools to bring about pay hikes that will enable people to overcome inflation" while incentivizing companies to pay higher wages as we cut income and residence taxes, Kishida told reporters.

The opposition bloc has doubted the effectiveness of the proposed tax reduction while Koichi Hagiuda, the policy chief of the LDP, has expressed confidence it will be well received among the public when it goes into effect next June.

Of the 13.20 trillion yen, 8.88 trillion yen will be secured by issuing new government bonds, putting more strain on the coffers of already heavily indebted Japan.

Japanese Prime Minister Fumio Kishida (R) and Finance Minister Shunichi Suzuki bow after a House of Councillors plenary session where an extra budget for fiscal 2023 was enacted in Tokyo on Nov. 29, 2023. (Kyodo)

The total size of government spending for fiscal 2023 will swell to 127.58 trillion yen, of which about a third will be secured by issuing government debt.

The government will step up work toward the end of the year to formulate a draft budget for the next fiscal year from April, faced with the difficult task of reducing spending closer to pre-coronavirus pandemic levels.

The outcome of talks among the ruling coalition and the Democratic Party for the People over whether to end a freeze on a "trigger clause" on gasoline taxes will come into focus in the coming months. The small opposition party voted in favor of the extra budget after securing assurances that the issue will be discussed.

The clause, which enables gasoline taxes to be cut when certain conditions are met, was frozen to secure reconstruction funds in the aftermath of the 2011 earthquake and tsunami and the ensuing Fukushima Daiichi nuclear power plant accident. The DPP has been calling for its reinstatement.

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