(Bloomberg) — Japan’s cabinet approved a record initial budget for the year starting in April that offers up some measures aimed at promoting Prime Minister Fumio Kishida’s new vision of capitalism, while still adding to the developed world’s largest debt burden.

For the year ending March 2023, Japan plans 107.6 trillion yen ($940 billion) in overall spending, a 0.9% increase from the current year’s initial budget, the finance ministry confirmed Friday. The possibility of additional budgets will increase actual spending. Three of these were created last year during the pandemic and added 73 trillion Yuan to total spending.

The big ticket items are the 36.3 trillion yen increase in social security expenditures, 24.3 trillion trillion yen debt servicing, and increased defense outlays to combat the coronavirus.

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The budget also includes funds of 1.4 trillion Japanese yen for science and technology promotion and funding for the modernization and updating IT systems through the digital agency. On the distribution side, nurses, caregivers and kindergarten workers’ wages were raised 3%.

“This is Kishida’s first initial budget, and it reflects what he calls his new form of capitalism,” said economist Atsushi Takeda at Itochu Research Institute. “But on the growth side, things are a little lacking in impact.”

Given Japan is expected to have the slowest growth rate among Group of Seven nations next year according to the International Monetary Fund, Kishida is under pressure to make sure Japan’s pandemic recovery remains on track. The Japanese leader must be able to balance the need for longer-term fiscal stability with the desire to spend enough money in order both to sustain the economy and long-term growth.

The pandemic has forced Japan to add to its mountain of public debt, with another 36.9 trillion yen of debt to be added next year, though that is sharply down from the 43.6 trillion yen required to finance the current year’s initial spending plan. Even before last month’s extra budget, the IMF saw public debt hitting 256.9% of gross domestic product this year.

Next year’s budget also includes another 5 trillion yen in reserve funds for responding to the coronavirus’s spread.

Japan is currently immune to the latest omicron virus variant, which has been rampaging across the U.S.A. and U.K. However, this situation may change quickly.

The first instance of community spread in Osaka Prefecture’s Osaka region this week was confirmed. On Thursday another case was reported in Kyoto. With its borders effectively closed off to new foreign visitors, most of the nation’s cases have come from travelers and have been discovered through airport testing, with total cases of the variant surpassing 100 for the first time this week.

Japan finds another case of community spread of Omicrons in Kyoto

Japan could be forced to draw quickly on its reserves funds if omicron continues spreading in Japan, and reintroduce restrictive measures which would impact the economy. 

Kishida faces a next-year summer election and his decision on how to handle the new version could determine whether he achieves his goal of not becoming just another short-term Japanese prime Minister.

Here’s the breakdown of next year’s budget expenditures:

• General spending of 67.4 trillion Japanese yen, which includes:
  • For social security, 36.3 trillion yen
  • A coronavirus emergency reserve fund of 5 trillion yen
• 2.4.3 Trillion yen for debt servicing
• Transfers to local and regional governments total 15.9 trillion yen

On the income side, bond issuance is planned to decrease from this year’s record levels as tax income is expected to rise to record levels. The amount of debt funding will be 34.3%, as compared to 40.9% for 2021. Next fiscal year, 215 trillion yen in government bonds will be offered by the finance ministry. The majority of these bonds will be used to refinance existing bonds.

Here’s the breakdown of fiscal 2021’s projected income:

• In tax revenues, 65.2 trillion yen
• Revenue from bond issuance now totals 36.9 trillion won
• Sources: Other than Japan, 5.4 Trillion Yuan

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