Japan's Cabinet approved Friday an extra budget plan of 13.20 trillion yen ($87 billion) for fiscal 2023 ending March to fund a new economic package designed to mitigate the burden of rising prices on households and navigate the economy through the cost-of-living crisis.
Of the total, 8.88 trillion yen will be secured by issuing new government bonds, adding to a pile of state debt already amounting to more than twice the size of the economy. The government aims to have the budget plan approved by parliament before the end of November.
The supplementary budget brings total spending for fiscal 2023 to a massive 127.58 trillion yen. Roughly a third, or 44.5 trillion yen, will be funded by government bonds, with the restoration of fiscal health taking on greater urgency amid prospects that rising bond yields will increase debt-servicing costs.
Prime Minister Fumio Kishida is prioritizing tackling the recent bout of inflation, largely caused by the higher costs of importing energy and raw materials, as rising prices of everyday goods have sent his approval ratings to fresh lows at a time when real wages are falling.
The government will give low-income households who are exempt from paying tax 70,000 yen by the end of the year, which will cost around 1.06 trillion yen.
Another key feature of the package, an income and resident tax cut of 40,000 yen per person, will require around 3.5 trillion yen but will be implemented in June, meaning that it will affect the next fiscal year's budget.
"We have compiled measures that are truly necessary to protect people's livelihoods from surging inflation, and strengthen the momentum for structural wage hikes and more investment," Finance Minister Shunichi Suzuki said at a press conference.
Suzuki acknowledged that Japan's fiscal health is at its worst level but a strong economy is the prerequisite for fiscal restoration. The government will aim to reduce fiscal spending to levels of "normal times," as it crafts by the end of the year a different budget for fiscal 2024, the finance chief added.
The economic package approved in early November by the Cabinet has five pillars. Some 2.74 trillion yen will be spent on inflation relief steps, such as an extension until next spring of existing subsidies to lower gasoline and other fuel costs.
The government will spend 1.33 trillion yen to support small and midsize companies implementing pay hikes, and 3.44 trillion yen to foster growth in strategic sectors through investments, such as in artificial intelligence and semiconductors.
Japan is seeking to build robust supply chains since COVID-induced parts shortages impacted automakers and other manufacturers and raised the alarm about national security risks.
The government is supporting Taiwan Semiconductor Manufacturing Co. and Rapidus Corp. of Japan, with 1.85 trillion yen earmarked in the budget for chip-related assistance.
Funds will be also allocated for the other two pillars of tackling the challenges posed by the nation's declining birth rate and taking steps to ensure the safety and security of the Japanese people.
The tax cut plan has met criticism from opposition lawmakers who say the government is doing too little too late and are calling for a reduction in the consumption tax instead, as the country's inflation rate has been above 2 percent for more than a year.
Some opposition lawmakers have also taken issue with what they see as the government's "illogical" explanation.
Kishida has said the tax cut is part of efforts to "return" some of the increased government revenue in recent years to the public, though finance chief Suzuki told parliament this week that the government had already used the increased revenue to finance other policies and redeem debt.