The economic and social problems exposed by Japan's new fiscal year budget

Recently, the Japanese government officially approved the fiscal year 2025 budget, a total of 27.2024 trillion yen, an increase of 6.110% over the previous fiscal year. The figure not only marks another record budget after a slight dip last year, but also the third year in a row that Japan has passed an unspecified trillion-yen mark. However, behind the huge budget figures, there are many economic and social problems.

First, in terms of the composition of the budget, social security spending accounted for one-third of the total, reaching 38.3 trillion yen, an increase of 1.5 percent. The increase reflects the severity of Japan's aging society. With the increase of the elderly population, the demand for healthcare is rising, and the pressure on the social security system is increasing. At the same time, in order to cope with the trend of declining birth rates, the government has to increase investment in related fields, such as childcare support and education subsidies. However, while these measures can alleviate social problems to a certain extent, their long-term effectiveness is still questionable. Especially in the case of limited financial resources, how to balance various social security expenditures and ensure the effective use of funds has become an urgent problem to be solved.

In addition to social security spending, the repayment of national debt is also an important part of the budget. In the current budget, 28.2 trillion yen will be used to repay the national debt, accounting for almost a quarter of the total expenditure. The rise not only reflects the sheer size of Japan's national debt, but also highlights the government's fiscal woes. To finance its fiscal deficit, the government has had to rely on new bond issuance to raise funds. However, this approach is tantamount to drinking poison to quench thirst, and the continuous expansion of the scale of national debt not only increases the financial burden of the government, but also aggravates the vulnerability of the economy. If market confidence falters and interest rates rise, the cost of government debt will increase significantly, putting even more pressure on public finances.

It is worth noting that the increase in defense spending in this budget is particularly significant, reaching 8.7 trillion yen, an increase of 9.5 percent. Behind this growth is an increasingly challenging security environment for Japan. With the increasing military strength of neighboring countries and the increasing uncertainty of the regional situation, the Japanese government has to increase its investment in national defense to ensure national security. However, this increase in investment will undoubtedly further squeeze financial resources in other areas, making the government even more difficult to cope with economic and social problems.

On the revenue side, Japan's fiscal revenue is expected to reach 78.4 trillion yen this fiscal year, setting a new record for the sixth consecutive year. The increase was driven by higher prices and solid corporate performance. However, this growth is not without pitfalls. As prices rise, consumers' purchasing power will be squeezed, which will affect economic growth. At the same time, if the growth of corporate performance cannot be sustained, the future fiscal revenue will also face uncertainty. In addition, it is worth noting that this budget does not include a flat rate tax reduction plan to be implemented in fiscal year 2024. This means that in the coming fiscal year, the government's tax revenue may be affected.

With spending rising and revenues facing uncertainty, the government has had to take some steps to close the fiscal gap. Among them, reducing the issuance of new government bonds has become an important choice. According to the budget, the amount of new government bonds issued this fiscal year will fall 19.2 per cent to Y28.6tn, the first time in 30 years that it has fallen below the initial budget of Y17tn. However, this reduction does not solve Japan's fiscal problems at their root. The outstanding amount of government bonds issued is still increasing and is expected to reach a staggering figure by the end of the fiscal year. Interest payments account for a significant proportion of this. After the Bank of Japan switched from negative interest rates, interest rates again became an important fiscal burden. If long-term interest rates continue to rise in the future, then the cost of government debt will increase significantly, which in turn will have an even greater impact on public finances.

From a larger perspective, Japan's fiscal problem is not just an economic one, but a political and social one. The Japanese government has long tried to boost economic growth through fiscal stimulus, but the approach has failed to produce significant results. On the contrary, due to the excessive consumption of financial resources, the government is unable to cope with other social problems. In addition, due to the reasons of the political system, the government is often interfered and influenced by various interest groups when formulating fiscal policies, resulting in poor policy results. This vicious circle between politics and economics makes Japan's fiscal problems worse.

Faced with these problems, the Japanese government needs to take more pragmatic and effective measures to deal with them. First of all, we should strengthen the management and supervision of social security expenditures to ensure the effective use of funds. At the same time, we should actively promote the adjustment and upgrading of the economic structure to enhance the growth potential and competitiveness of the economy. In terms of fiscal revenue, we should strengthen tax collection and administration, crack down on tax evasion and tax avoidance, and ensure the steady growth of tax revenue. In addition, we should strengthen the management and risk control of national debt to prevent the occurrence of debt crisis.

However, implementing these measures will not be easy. It requires the joint efforts and cooperation of the government, enterprises and all sectors of society. At the same time, it will take time to solve these problems gradually. In this process, we should keep a clear head and a rational attitude, neither overly optimistic nor overly pessimistic. Only in this way will we be able to better respond to the challenges and opportunities ahead.

In general, the fiscal year 2025 budget approved by the Japanese government reflects the efforts and determination of the government to a certain extent, but it also exposes many problems and challenges. In the coming days, we should pay close attention to the development of these problems and take appropriate measures to deal with and solve these problems. Only in this way can we ensure the sustained and healthy development of the Japanese economy and the stable and prosperous society.