Japan's $210 billion supplementary budget set to pass lower house

Japan's second, 29 trillion yen ($210 billion) supplementary stimulus budget for this fiscal year is set to clear the lower house on Tuesday, paving the way for the spending plan to win final parliamentary approval in the upper chamber this week.

The supplementary budget, backed mostly by additional bond issuance, highlights Prime Minister Fumio Kishida's difficulty with the conflicting aims of controlling the national debt and pulling the economy out of pandemic doldrums with fiscal stimulus.

The national debt, the world's largest, is already more than twice as big as annual economic output. Adding to it will leave the country as an outlier from the global trend of ending crisis-mode fiscal stimulus.

Parliamentary officials said ruling and opposition party lawmakers had agreed to vote on the supplementary budget bill in the lower house late on Tuesday afternoon. Since the ruling bloc has a solid majority in both lower and upper chambers, passage of the budget is not likely be hindered.

Also on Tuesday, an advisory panel to Finance Minister Shunichi Suzuki called for balancing needs for "responsible fiscal management" and "boosting defence capability." It said those would be key issues for the regular annual budget for the coming fiscal year, beginning on 1 April 2023.

Recommendations that the panel under the Fiscal System Council presented to Suzuki will be the basis for drafting the next annual budget.

The Finance Ministry compiles an annual budget in December each year. Its draft goes first to cabinet for approval, then to parliament in January for debate and enactment before the end of March.

Kishida instructed defence and finance ministers on Monday to work together to increase defence spending's share of gross domestic product to 2% from the current around 1% in five years.

Given Japan's tattered public finances, however, how to pay for more defence capability remains a contentious issue between the defence ministry and the finance ministry's fiscal hawks.

The panel stressed the importance of finding a stable way to to do it, though it did not specifically mention the three obvious alternatives: higher taxes, other spending cuts or more debt.

It urged those concerned to debate earnestly and gain an understanding from the public about how to share burdens broadly. It did not single out any specific funding sources.

"Japan's fiscal situation will become more severe ahead," the panel said in its semiannual recommendations.