Prime Minister Sanae Takaichi’s administration has approved the initial budget proposal for next fiscal year, which includes a record 122.3 trillion yen ($782 billion) in general-account expenditures.
The overall amount swelled because price increases were reflected across expense categories such as social security, and higher interest rates were factored in. The prime minister also prioritized growth investments and defense spending.
While some spending was restrained, fiscal constraints have become even more severe. It is essential to face reality and manage public finances with a sense of crisis.
One area of growing significance is the cost of interest payments on government bonds, with outstanding debt now exceeding 1,000 trillion yen.
Long-term interest rates climbed to 2.1 percent at one point, a level not seen in about 27 years, due to the Bank of Japan’s rate hikes and concerns over the administration’s “proactive fiscal policy.”
The draft budget for fiscal 2026 assumes an interest rate of 3.0 percent for debt servicing, up from 2.0 percent in the initial budget for this fiscal year, pushing up interest payments by 2.5 trillion yen to 13 trillion yen.
The rise in interest payments accounts for more than one-third of the overall budget increase of 7.1 trillion yen.
For about two decades through last fiscal year, low rates kept interest payments in the range of 7 trillion yen to 8 trillion yen. But the environment has changed.
The government refinances maturing bonds by issuing new ones. Going forward, bonds issued during the years of ultra-low interest rates will be replaced by higher-interest debt, further squeezing the portion of the budget available for policy initiatives.
The composition of spending also warrants scrutiny. Social security costs, which make up 30 percent of total spending, will rise by 700 billion yen to address the growing elderly population and support financially struggling hospitals.
However, only about 150 billion yen in savings is expected from measures such as revising the high-cost medical care benefit system to raise out-of-pocket payments based on income.
For crisis management and growth investments in areas such as artificial intelligence and semiconductors, which are championed by Takaichi, the government will allocate 1.9 trillion yen, following the 6.4 trillion yen in this fiscal year’s supplementary budget.
Defense spending will also rise sharply, surpassing 9 trillion yen for the first time.
Takaichi has criticized the trend of compiling large supplementary budgets, saying necessary programs should be incorporated into the initial budget. Does this mean that there will be no major extra budget next fiscal year?
Are allocations for growth investments and other categories being used in line with their stated purposes? Have any of them become entrenched as vested interests? Has the prime minister’s agenda become a sacred cow beyond challenge?
An unceasing review of the budget is a responsibility politics must fulfill.
On the revenue side, tax receipts are estimated at a record 83.7 trillion yen.
Even so, funding falls far short, and new government bond issuance will reach 29.5 trillion yen, 900 billion yen more than in the initial budget for this fiscal year.
Since the asset-inflated economic bubble burst in the 1990s, successive administrations have expanded budgets in the name of economic stimulus, among other pretexts.
With a declining birthrate and aging population, social security spending has more than tripled since fiscal 1990, and total expenditures have grown 1.7 times.
In an inflationary environment where interest rates have also risen, the government’s approach to compiling a budget that supports the public’s livelihoods is being put to the test.
–The Asahi Shimbun, Dec. 27