Japan Approves Record $730 Billion Budget with Reduced Bond Issuance
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Japan's cabinet is set to approve a record ¥115.54 trillion ($731.28 billion) general-account budget for fiscal 2025 on Friday, according to Nikkei Asia. While this represents a significant increase from the previous year, the government plans to finance a smaller portion of the budget with debt.
The budget proposal, agreed upon by the Liberal Democratic Party and Komeito on Thursday, reflects increased spending in social security and defense to address an aging population and evolving security concerns. This marks an increase in spending after a reduction in the initial fiscal 2024 budget, which saw significant cuts to emergency reserves.
However, record-high tax revenues are expected to offset some of the increased spending. Tax receipts are projected to reach ¥78.44 trillion, representing an increase of nearly ¥8.3 trillion from the initial fiscal 2024 budget. This growth is attributed to wage increases, stimulating income and consumption tax revenue, as well as strong corporate earnings driven by robust exports.
Individual income taxes are expected to generate ¥23.3 trillion in revenue, corporate taxes ¥19.2 trillion, and consumption taxes ¥24.9 trillion. Each category is larger than the estimates for fiscal 2024, including the supplementary budget.
Despite these strong tax projections, tax code changes for the upcoming fiscal year, including an increase in the tax-free income threshold for individuals, are expected to reduce overall tax revenue by approximately ¥700 billion.
The government plans to finance approximately 25% of the budget with new bond issuances, a decrease of 6 percentage points from fiscal 2024. This marks the first time since fiscal 1998 that bond financing will fall below 30% of total spending.