Japan’s cabinet has approved a record ¥115.5 trillion ($732 billion) budget for the fiscal year starting April 2025, setting the stage for a crucial test of Prime Minister Shigeru Ishiba’s minority government as it seeks parliamentary approval, Bloomberg reports.
The proposed budget, detailed on Friday, represents a 2.6% increase from the current year and is partially funded by record tax revenue.
The budget plan anticipates ¥78.4 trillion in tax receipts, allowing for a 19% reduction in new bond issuance. However, Ishiba’s coalition government, which lost its lower house majority in an October election, is facing political challenges in securing the necessary support for its passage.
Since the election, Ishiba’s government has had to negotiate with opposition parties to gain support for its policy plans. To win the backing of the small Democratic Party for the People (DPP) for an economic stimulus package, the coalition agreed to raise a ceiling on tax-free income during the annual tax reform process. However, subsequent disagreements over the exact level of the ceiling have placed the DPP’s continued support for coalition policies in doubt. The DPP is demanding further talks on the tax ceiling, giving it considerable leverage.
Ishiba may turn to the opposition Japan Innovation Party to secure passage of the budget by March. This Osaka-based party advocates free high school education and school lunches, regardless of parental income – a proposal the coalition has promised to consider.
The Prime Minister is walking a political tightrope ahead of the upper house election expected in July next year. A recent public opinion poll showed his disapproval rate surpassing his approval rate. Ishiba has also faced criticism for his performance on the international stage, particularly his casual approach to summits in South America and his failure to secure a meeting with President-elect Donald Trump while other world leaders have. Trump recently indicated he is willing to meet Ishiba, potentially before the US presidential inauguration on Januar 20.
Parliamentary debate on the budget will begin in January. Strong tax revenues are expected due to factors such as the phasing out of an income tax cut and inflation, according to a Finance Ministry official. The government initially projected tax revenue of around ¥69.6 trillion for the current year, but the latest estimate is ¥73.4 trillion.
The proposed budget includes:
• General spending: Approximately ¥68.2 trillion
• Social Security: ¥38.3 trillion, up from ¥37.7 trillion in fiscal year 2024
• Defense: A record ¥8.5 trillion, a 9.7% increase
• Debt Servicing: Around ¥28.2 trillion, a 4.5% increase
• Interest Rate: Set accumulated interest rate at 2%, up from 1.9%
• Transfers to regional governments: ¥19.1 trillion, up 7.3%
On the revenue side:
• Tax income: ¥78.4 trillion, up from ¥69.6 trillion, due to inflation and policy factors
• Fresh government bonds: ¥28.6 trillion
• Other income: ¥8.5 trillion
