Government remains reluctant to spend

The budget for the coming fiscal year foresees broadly neutral rather than expansionary fiscal policy. With supplementary spending for the current fiscal year barely larger than last year’s, the strong increase in public spending promised last July will not materialise. The headlines have highlighted the record ¥97.5 trillion planned in overall spending. But if we exclude interest payments and redemption of existing debt, expenditure will only rise by 0.9% relative to FY2016, which would be in line with our 1% forecast for nominal GDP growth in the coming fiscal year. Meanwhile, a predicted near-stagnation in tax revenue will be offset by a substantial rise in “other revenues”, and bond issuance is expected to fall marginally. Admittedly, the budget covers just 40% of general government spending and an even smaller share of revenues.  The link between changes in budgeted spending and overall public spending is therefore not close.