Japan Plans 6.6% Increase in ’89 Budget

The Finance Ministry unveiled Thursday a $483-billion draft budget for fiscal 1989, offering few major surprises in a document that would moderately boost defense spending and foreign aid and make progress toward phasing out deficit-financing bonds.

The proposal recommends a 6.6% increase over last year’s general account budget, the largest increase in eight years. Having been endorsed Thursday by the Cabinet, it will be subject to haggling by various government agencies before formal Cabinet approval Tuesday. The budget will then be put to a vote in Parliament.

The Finance Ministry recommended increasing outlays for foreign aid by 5.9%, to $6 billion, in keeping with Prime Minister Noboru Takeshita’s pledge to channel $50 billion into development assistance over five years.

That amount is expected to increase slightly after negotiations with the Foreign Ministry. Once “soft” loans from the government’s fiscal investment program are taken into account, the total amount of Japan’s foreign aid in the fiscal year beginning April 1 should exceed $10 billion, said Hideichiro Hamanaka, director of research in the ministry’s Budget Bureau.

Japan budgeted more for foreign aid than the United States for the first time in fiscal 1988. It is not yet certain whether Japan overtook the United States as the world’s top donor, however, because final figures on disbursements are not known. Estimates are that it spent about $10 billion, compared to $8.8 billion in U.S. foreign aid in the previous fiscal year.

Defense spending would be raised in the new budget to $31.1 billion, a 5.2% increase identical to that of the past two years. The Defense Agency had requested a 6.13% increase.

Assuming economic growth of 4% for the year, as the government now forecasts, the 5.2% increase would represent 0.999% of Japan’s estimated gross national product, and would barely squeeze under the de facto defense spending cap of 1% of the GNP.

Included in the proposed defense budget was a 16% increase in the amount the government pays for “burden sharing,” or support of U.S. troops stationed in Japan under a mutual security pact.

Anticipating that economic expansion will bring a 13.1% rise in tax revenue, the Finance Ministry moved to cut the fiscal deficit to $56.9 billion, or 11.8%, of total expenditures. That would be the lowest rate in 14 years.

The reduction keeps the government on its timetable of phasing out the issuance of deficit-financing bonds after fiscal 1990, Hamanaka said. Heavy deficit spending in recent years has left Japan strapped, with a burdensome debt-service ratio of 19.3% of its general account total.

Public works spending remained flat, but the normally parsimonious Finance Ministry appropriated $54.4 million for the construction of two new shinkansen , or “bullet train” lines, widely believed to be political pork-barrel projects.