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Jan 14, 1:53 AM EST

Japan approves record $814 billion budget after tax hike

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TOKYO (AP) -- Japan's Cabinet approved a record 96.3 trillion yen ($814 billion) government budget for the coming fiscal year Wednesday after a tax hike to accommodate rising outlays for social security and defense.

Rising revenues following the sales tax increase last April enabled Prime Minister Shinzo Abe to raise spending without increasing the proportion financed by new government bonds, though the total national debt is still about twice the size of the economy.

Abe's government must tread a fine line between spending enough to support growth and slowing the rise in debt, which is the highest, proportionately, among industrialized countries.

Passage of the budget approved Wednesday morning is almost certain since the ruling Liberal Democratic Party's coalition with the small Komeito party has majorities in both houses of parliament.

As Japan's population ages quickly, welfare costs are soaring. Social security spending will account for about a third of the budget. The economy is in recession but the government has forecast growth at 1.5 percent this year, after an estimated 0.5 percent contraction in 2014.

To balance his conflicting priorities, Abe is increasing outlays targeting families and other households that are struggling as wages lag behind price increases. But he also intends to cut corporate income taxes by 2.5 percentage points in the fiscal year that begins April 1, to 32.11 percent. Further cuts are planned.

The government is also tweaking tax rules to encourage elderly Japanese, who hold about 60 percent of the country's 1.6 quadrillion yen ($13.6 trillion) in private savings, to spend more on their children and grandchildren.

The increase in revenues thanks to the April 1, 2014 increase in the national sales tax to 8 percent from 5 percent has enabled the government to slightly reduce the share of the budget funded by issuing new bonds, to about 38 percent from over 40 percent.

An economic recovery would further improve national finances, but a decision to put off a second sales tax hike planned for October until April 2017 is likely to hinder progress on trimming total national debt.

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