TOKYO: Japan’s government is set to estimate tax revenue at a 25-year high of 57.6 trillion yen ($475.25 billion) in fiscal 2016, helped by rising corporate profits, when it prepares the biggest-ever annual budget next week, sources told Reuters.
The draft budget for the next fiscal year is expected to rise to 96.7 trillion yen, up from the current year’s initial plan worth 96.3 trillion yen, reflecting rising social welfare costs as well as military outlays, they told Reuters on condition of anonymity because the plan has not been finalised.
Prime Minister Shinzo Abe is counting on economic growth to boost tax revenue, but the coming year’s budget also highlights his struggle to curb bulging welfare costs of the fast-ageing population while he faces an upper house election next year. The draft annual budget comes on the heels of a 3.3 trillion yen extra stimulus budget for the current fiscal year, which was approved by Abe’s cabinet on Friday.
Expected tax revenue would be the third largest on record after levels seen in the bubble era of the early 1990s when tax receipts stood at around 60 trillion yen. Rising tax revenue will allow the government to reduce new bond issuance to 34.4 trillion yen in the fiscal year that starts in April, the sources said.
That would be the lowest since fiscal 2008 when fresh borrowing stood at 33.2 trillion yen, just before the global financial crisis hit the world’s third-largest economy and dented tax revenue.
As a result, Japan’s fiscal dependence on bond financing will be lowered to around 35 percent in the next fiscal year, which would be the lowest since fiscal 2008. The budget is expected to be endorsed by the cabinet next week, before it is sent to parliament for approval early next year.
As the Bank of Japan keeps bond yields low under its quantitative easing program, the government is expected to lower assumed interest rates from this year’s 1.8 percent to 1.6 percent, which would slow a rise in interest payments. This will bring debt-servicing costs – interest payments and debt redemption – to 23.6 trillion yen, up 150 billion yen from this fiscal year, the sources said.
