Japan’s New Budget Proposal for FY 2021



by Tetsuhiro Nakagawa

1. Overview of the 2021 Budget Proposal

Japan’s new budget proposal for FY2021 was decided by the cabinet in December of last year. In Japan, at the end of each year, the government decides its budget proposal for the next fiscal year, which starts from April. Budget proposals decided by the government are deliberated in regular Diet sessions convened in January of the new year, and are approved in due course by April if the process proceeds as normal.

The total amount for the general account in the 2021 budget proposal is about $1 trillion[1] (106.61 trillion YEN), hitting a record high for the ninth consecutive year. It also exceeds over 100 trillion YEN for the 3rd year in a row. A demand for policy has been increasing in Japan, especially in the field of social security, such as public healthcare and pension systems, in light of the rapidly aging population. Social Security expenses account for about 54% of spending outside of debt payments and money transfers to local governments. Compared to the U.S., whose federal budget of FY2020 was $4.8 trillion, Japan’s budget is about one fifth that size, while Japan’s GDP ($5 trillion) is about one fourth of the U.S. GDP ($21.37 trillion. Nominal in 2019, World Bank data).

[1] For the convenience of the reader, in this article, the dollar amount that has been converted from the original YEN amount, and is rounded based on the number of Japanese yen. Please note that it is not an exact number. 

Graphs by Tetsuhiro Nakagawa (JITTI USA) were made using data from Japan's Ministry of Finance

The main features of this year’s budget proposal are as follows:

• The largest ever total number

• The largest amount ever of Social Security spending

  
  

  Stated above, the rapidly growing number of elderly populations has led the expansion of Social Security costs.

• The largest amount ever of National Defense spending

  
  

  It is up 0.5% from FY 2020 and has hit a record high for the seventh consecutive year as tensions within the region rise due to China’s growing maritime assertiveness and North Korea’s missile threat. The budget also includes the cost of strengthening capabilities in new domains, including cyberspace, outer space, and the electromagnetic spectrum.

• Addition of $50 billion to the reserve fund

  
  

  The government has reserved $50 billion for future responses to the COVID-19 pandemic. The money, which can be spent without parliamentary approval, will allow the government to act swiftly when needed to contain the virus.

• Establishment of a “Digital Agency”

  
  

  The government will set up a new “Digital Agency” in September to expedite the digital transformation of government work and services. The Digital Agency will be established as a headquarters to strongly promote administrative digitalization in order to realize more efficient administrative management in the post-corona era. In addition to digitizing various administrative services, the agency will also advance online medical care and digital education. Furthermore, the mission of the agency includes popularizing the "My Number Card" to dramatically improve the efficiency of administrative services. The “My Number Card” can be used as an official identification card for verifying identity, and can make various administrative procedures more convenient, such as by allowing resident cards to be issued at convenience stores. It was introduced in 2015, but as many people have not felt the benefits, it has not yet become very popular.

This image illustrating the "My Number Card" is from Japan's Ministry of Internal Affairs and Communication.

• Revenue

  
  

  In light of the deterioration in corporate performance due to the COVID-19 pandemic, revenue for the 2021 fiscal year lowered approximately 5% ($60 billion) compared to the previous fiscal year's initial budget. In order to respond to the dual shock from both lower tax revenue and higher spending, the amount of new government bonds issued, which is to say the national debt, increased by about 34% ($110 billion) from the previous fiscal year to $436 billion. For Japan, which has been working to rebuild its finances, the increase in national debt is a first in 11 years based on initial budget figures.

Graph by Tetsuhiro Nakagawa (JITTI USA) via data from Japan's Ministry of Finance

2. Budget Items related to Transportation and Tourism

In the 2021 government budget proposal, the transportation and tourism sectors are summarized as related to the Ministry of Land, Infrastructure, Transport and Tourism (MLIT). The MLIT's budget for the 2021 fiscal year consists of the following three pillars. There have been no major changes in the theme in recent years.

1. Ensuring the safety and security of the public

2. Achieving sustainable economic growth

3. Forming rich and vibrant regions and creating a multi-regional country

In addition to traditional policies of advancing transportation infrastructure to support Japan’s economic and social activities, several new measures have been developed in light of the effects of the recent pandemic. The followings are excerpts of the MLIT's budget statement.

2. Achieving sustainable economic growth

(2) (a) Promote digital transformation, technology development, work-style reform, etc. in infrastructure and logistics fields ($84 million / 8.4 billion yen)



In order to respond to the novel coronavirus infection that has brought about an unprecedented crisis, various measures have been introduced to efficiently transform social capital and public services based on the needs of the people by utilizing data and digital technology in the infrastructure field.

(Examples of measures)

• Improve productivity by promoting the digitization of passenger transportation business using ICT.

• Convert to a sustainable railway system through labor saving and efficiency improvement through the use of ICT.

• Construct non-contact and non-face-to-face logistical systems through labor saving and automation of logistic sites, etc.

• Improve productivity and strengthen international competitiveness of port logistics by digitizing port logistic information and linked data.

Image Source: Ministry of Land, Infrastructure, Transport, and Toursim of Japan

(4)(a) Continue the “Go To Travel” campaign ($13 billion / 1,311 billion yen)

Japan’s initiative to promote domestic travel, called the “Go To Travel” campaign, which was introduced in the supplementary budget for FY2020, will be extended through the FY2021 on the premise that both business operators and travelers should thoroughly implement measures to prevent the spread of infection. By responding flexibly depending on the state of the infection, a full-fledged recovery of domestic travel demand is attainable.

Please also refer to our feature article, “An Introduction of Japanese Tourism Initiatives During the Pandemic,” in the JITTI Journal’s November 2020 edition. 

3. Forming rich and vibrant regions and creating a multi-regional country

(2) (d) Promote the spread of next-generation mobility ($7 million / 700 million yen)

In order to respond to structural changes in the movement of people and goods brought about by post-COVID lifestyles, Japan will promote the spread of next-generation mobility using new technologies, such as AI and IoT.

(Examples of measures)

• Promote MaaS that responds to new needs, such as congestion avoidance, based on the spread of infectious diseases.

• Support efforts to establish technical requirements for the practical application of autonomous driving, develop standards for road spaces, and implementation.

• Promote measures to support the introduction of next-generation vehicles that contribute to the greening of regional transportation.

• Promote the development of an environment for the realization of visual flight of unmanned aerial vehicles.

• Promote the development of an environment for the social implementation of "flying cars" as a new business.

Measures aim for a more green transportation network.

Measures also aim for transportation modes to travel seamlessly in the future, as mobility options for goods and people advance

3. Supplementary Budget 2020

The expenses required for measures to address the COVID-19 pandemic, which is the most important issue for countries around the world, are mainly recorded in the supplementary budget for the 2020 fiscal year. The supplementary budget is constructed annually and, like the regular budget, is deliberated and approved by the Diet. In the 2020 fiscal year, three supplementary budgets have already been set to address the pandemic. These measures, some of which are in common with those passed in the U.S., such as personal benefits, loans for large corporations, assistance for small businesses, and subsidies to maintain employment, are implemented under the supplementary budget, as in the U.S.

For reference, the total size of Japan's supplementary budget implemented in the 2020 fiscal year was about $730 billion (73 trillion yen). It was equivalent to 71.6% of the annual budget of about $1 trillion (102 trillion yen) and about 14% of its GDP. The U.S. has a total of just over $3.8 trillion from the first to the fourth round of economic measures, which amounts to 79.2% of annual budget expenditures and 18% of its GDP. It can be assessed that the US has taken measure to provide relatively larger financial aid to address the pandemic so far.

Graph by Tetsuhiro Nakagawa (JITTI USA)

Looking at the contents of the supplementary budgets of both countries, most of the expenditure items related to transportation are either measures to maintain the workforce in the transportation sector or measures to prevent the spread of the novel coronavirus in the sector. On the other hand, in Japan, the supplementary budget over the past three iterations have been characterized by not only the response to the current pandemic, but also measures for economic revitalization during a current or post-corona era, such as measures to make major changes by shifting into a digital society. It can be said that in this respect, these characteristics are a distinctive difference between the two nations.

Society 5.0 is a national vision aimed at realizing a data-driven, human-centric society for future generations. It is a concept in which economic development, digitalization, and solutions for social issues are aligned. Image Source: The Government of Japan