TOKYO, Dec. 23 (Xinhua) -- Japan's cabinet approving a record 830 billion U.S. dollars spending budget for fiscal 2017 has underscored the nation's struggle to curb spending and rein in its massive public debt in the face of a demographic nightmare as fiscal rehabilitation remains firmly on the back burner, while money for military spending seems readily available.
Analysts here have also been quick to note that the 97.5-trillion-yen general-account budget for the fiscal year starting on April 1, sees a whopping 733 billion yen from the proposed plan earmarked for a rapidly swelling social security bill, to deal with welfare costs associated with Japan's rapidly aging society.
Also raising the eyebrows of economists and military analysts here, is the fact that Japan's defense spending is set to rise for a fifth straight year to a new record 5.12 trillion yen (43.60 billion U.S. dollars), as the Defense Ministry eyes a shopping list of new military hardware, with local analysts believing Japan can ill-afford such technology, especially if it can't provide the social welfare necessary to deal with its own "demographic overhang."
Prime Minister Shinzo Abe has repeatedly stated, however, in contrast to the massive spending plans just outlaid, that he plans to curb spending on his way to achieving, as with all his economic targets that are far from coming to fruition, his aim of creating a primary budget surplus, excluding debt servicing and new bond sales, by the fiscal 2020.
And analysts believe that the spending plans will not stop here, as has been the case in the past, and more extra budgets will be pumped out by Abe's administration that preaches austerity on the one hand yet looks to spending for stimulus time and again, despite the fact that public debt currently stands at 240 percent the size of Japan's economy and the worst in the industrialized world.
"This budget does not mark a shift away from reflationary policies. Chances are high for Abe to compile additional stimulus budgets later next year," Toru Suehiro, senior market economist at Mizuho Securities, said.
Meanwhile, the Organisation for Economic Cooperation and Development (OECD), has warned that Japan's debt pile could jump to 400 percent of GDP within three decades, if policymakers do not implement structural reforms and keep from simply piling on more debt.
But while the Ministry of Finance is attempting to show that it is reining in unnecessary spending, knowing full well extra budgets will be added at a later date, the move is widely believed by to be a decades-old, downward spiral used by Japan that not only loosens fiscal discipline, but sees it unravel alongside other stimulus measures such as the central bank pushing borrowing costs to a new record low.
"If Japan adopts extra stimulus budgets, that will cause more debt issuance. Given such a possibility, I don't think fiscal discipline is at work with this budget," Hidenori Suezawa, fiscal and markets analyst at SMBC Nikko Securities, said of the issue, with other analysts stating that a spending reform is truly needed for Abe and his government to get their fiscal house in order.
Multiple delays of the second phase of the consumption tax hike by Abe have also added to the government's fiscal woes and inability to achieve sustainable growth, economists have said.
Even Japan's own Finance Minister Taro Aso has said that fiscal rehabilitation has become "more difficult since the postponement of the sales tax hike," although believes that the government planning to issue less government bonds for 2017, is a move in the right direction.
In terms of the budget's major outlays, it stands to reason that as Japan is dealing with a demographic crisis of a shrinking and aging population, that a significant portion of the latest budget, equal to 32.47 trillion yen, or 1.6 precent more than in fiscal 2016, is targeted at tackling mounting social security costs.
The "silver tsunami" demographic phenomenon battering Japan is nothing new in terms of rising social security costs, however, the number of annual births in Japan is set to fall below 1 million this year, which will mark the first time numbers have slumped to this level since data became available in 1899, underscoring the rapid rate at which society here is both aging and the ballooning costs of childcare.
According to multiple local media reports, the total number of births is expected to be between 980,000 and 990,000 this year, down from just over 1 million last year, with a shrinking population of women in their 20s and 30s cited as being highly significant, as is the low fertility rate among women here.
Analysts have said this is a major problem facing Japan's economy, as ultimately its workforce will be hollowed out as the population continues to age and shrink, and in terms of structural reforms to counter this, it is universally known that Abe's government is well behind the curve and has prioritized other issues, such as beefing up Japan's constitutionally unsound military.
Japan under the new budget plan is eying to increase defense spending for a fifth straight year to a new record 5.12 trillion yen (43.60 billion U.S. dollars), a move that observers have described as once again contradicting the government's plans to curb spending, rein in costs and get its fiscal house in order.
Defense Minister Tomomi Inada said the 1.4 percent hike on spending compared to plans made in 2016 were based on the government's medium-term plan to bolster defense capabilities and the 176.9 billion yen addition to defense spending under the third supplementary budget for fiscal 2016 was based on the "situation around Japan this year."
That said, economists believe that these costs, added to rising social security costs, will add near unendurable pressure to Japan's already buckling economy.
Under the budget plan, a record 210.6 billion yen was also earmarked for The Japan Coastguard, which is 12 percent more on year, with the amount somehow inexplicably surpassing the 200.5 billion yen the agency initially asked for.
Total defense expenditure for FY 2017 will be 5.13 trillion yen (43.68 billion U.S. dollars), with the fifth annual increase doing little to settle tensions in the region, military experts have said, and, if anything, Japan's hardware shopping list could trigger something of an arms race in the region, which could lead to a growing "cold war" mentality, which, considering Japan's push to reassert itself on the global military stage, by way of new war legislation, could turn from "cold" to "hot" very quickly.
Under the budget plan, Japan, among other things, plans to acquire six additional F-35A Lightning II Joint Strike Fighters, four V-22 Osprey tilt-rotor aircraft, despite the accident-prone plane crash-landing in Okinawa recently irking both local and government officials, 11 AAV7 amphibious assault vehicles, and an additional Soryu-class diesel-electric attack submarine.
The defense budget has also seen funds for research balloon from 600 million yen to 11 billion yen, with new programs including systems for next-generation ship-to-air missiles for destroyers, air-to-ship missiles, and a land-to-ship missiles.
In addition, under the budget, the defense ministry will be plowing funds into cyber resilience technology research and will be conducting research on autonomous surveillance technology and a sensor system for unmanned underwater vehicles, sources close to the matter have said.
In terms of the Coast Guard, the government will add five large surveillance ships and three research vessels to its fleet, and aims to build an armada of 142 patrol vessels by the end of 2020.
For a country that is constitutionally bound to not maintain any war potential, or use force as a means of settling international disputes, analysts have said defense spending increasing for a fifth year on some of the world's most modern, next-generation hardware is nothing less than irresponsible for a country struggling to finance its own debt and care for its own people.
"Without high-impact reforms, potential growth in Japan is projected to decline from about 0.5 percent in 2015 to close to zero by 2030, given the demographic overhang," the International Monetary Fund (IMF) said in a recent report on the matter, adding that Japan is also forecast to be the weakest growing G7 economy this year.
