(Bloomberg) — Japan’s cabinet approved a record ¥115.5 trillion ($732 billion) budget for the fiscal year starting April 2025, setting up the minority government of Prime Minister Shigeru Ishiba for a key test of its longevity in getting the proposal approved by parliament.
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The budget plan detailed Friday marks a 2.6% increase from the current year, and would be partly funded by a record ¥78.4 trillion in tax receipts, enabling a 19% reduction in new bond issuance.
Since losing its lower house majority in an October election, Ishiba’s coalition government has been forced to negotiate with opposition parties over policy plans. In order to win the support of the small Democratic Party for the People to pass an economic stimulus package, the coalition agreed to raise a ceiling on tax-free income during the annual tax reform process.
Subsequent disagreements over the level of the new ceiling have thrown into doubt the DPP’s continued support for coalition policies, giving the small party leverage that it could use by threatening not to support the main budget for next year. The DPP wants further talks with the coalition in the new year over the tax ceiling.
Ishiba could instead seek to win votes from the opposition Japan Innovation Party to get next year’s budget passed by March. The Osaka-based party advocates making high school education and school lunches free for all students, regardless of parental income, a proposal the coalition has promised to consider.
The prime minister is walking a political tightrope ahead of an election for the upper house of parliament expected in July next year. A public opinion poll conducted by the Nikkei newspaper and TV Tokyo last weekend showed that his disapproval rate now surpasses his approval rate.
Ishiba has also had a mixed performance on the international stage after facing public criticism for appearing to take a casual approach to summits in South America, and failing to set up a meeting with President-elect Donald Trump while other world leaders have held talks with the incoming US leader. Trump said recently he is willing to meet Ishiba, including possibly before the US presidential inauguration on Jan. 20.
Debate over the budget for next fiscal year will begin when parliament reconvenes in January.
A breakdown of planned budget expenditures:
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Around ¥68.2 trillion in general spending
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About ¥38.3 trillion for social security vs ¥37.7 trillion in fiscal year 2024
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A record ¥8.5 trillion for defense, a jump of 9.7%
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Debt-servicing of around ¥28.2 trillion, rising by 4.5%
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Transfers to regional and local governments of ¥19.1 trillion, up 7.3%
