A Record Budget Stirs Debt Worries in Japan

A Record Budget Stirs Debt Worries in Japan
By HIROKO TABUCHI
Copyright by The New York Tim,es
Published: December 25, 2009
http://www.nytimes.com/2009/12/26/world/asia/26japan.html?hpw


TOKYO — The Japanese government approved on Friday a record ¥92.3 trillion budget for the next fiscal year that encompasses ambitious welfare outlays to help households cope with the country’s deep economic woes, but the scale of new spending could renew investor jitters about the government’s burgeoning debt.

Prime Minister Yukio Hatoyama — who took office in September after landmark elections that ended an era of single-party rule in Japan — has been trying to strike a balance between a budget big enough to kick-start economic recovery, while keeping new lending in check.

The new leader has been distracted, however, by mishandled negotiations over the fate of a U.S. military air base in Japan and by a campaign finance scandal. On Thursday, Mr. Hatoyama apologized to the nation after two aides were charged with falsely reporting donations, though the leader himself denied any wrongdoing.

Addressing the country for the second night in a row on Friday, Mr. Hatoyama, who leads the Democratic Party, urged the public to stay focused on the task of rebuilding an economy recovering from its worst recession since World War II.

The record $1 trillion budget for the year starting in April reorients spending to households by allocating more to welfare and education at the expense of public works projects, a big recipient of government funds under the ousted Liberal Democrats.

Mr. Hatoyama hopes the generous welfare spending will encourage households to consume more, offering a much-needed boost to the economy.

“Together with all of you, I want to build a better Japan, a new Japan,” Mr. Hatoyama said at a news conference. “I have adhered to the principle that people matter more than concrete,” he said.

Japan will issue fresh debt worth a record ¥44.3 trillion, in line with an earlier estimate, he said. The new borrowing brings Japan’s public debt to ¥862 trillion, or 181 percent of gross domestic product, at the end of March 2011, by far the highest in the industrialized world.

Dogging Mr. Hatoyama’s budgeting efforts has been a plunge in tax revenue as Japan’s export-oriented economy struggles amid a falloff in international trade brought on by the global economic crisis.

Tax receipts, at about ¥37 trillion, are expected to make up less than half the government’s budget, forcing the government to borrow more than it receives in revenues — another postwar first.

Citing tough finances, the government abandoned a campaign pledge to cut an unpopular tax on gasoline, and it has backtracked on promises to abolish tolls on Japanese highways. But the government stuck with its ambitious social agenda, which includes cash payments to child-rearing households and free public high school education.

Though most voters had appeared to be willing to give Mr. Hatoyama time to deliver on his promises, public support for Mr. Hatoyama is waning. A public opinion poll recently showed his approval rating had fallen below 50 percent, from a post-election high of 71 percent.

The campaign financing scandal has further eroded his credibility. At first, the allegations of improper accounting raised few anxieties among voters because much of the money involved was from Mr. Hatoyama’s own coffers or from his mother, an heiress to the fortune of the Japanese tire maker Bridgestone.

But the charges have increasingly painted Mr. Hatoyama as a leader out of touch with the economic plight of average Japanese at a time of high unemployment and persistent deflation.

The falling support puts the Democrats in a potentially precarious position ahead of elections for Parliament’s upper house, which must be held next year. The Democrats hope to clinch a majority in that chamber to match their control of Parliament’s powerful lower house.