Japan slams brakes on ¥5 trillion spend

2012-09-07 10:50

Tokyo - Japan said Friday it would delay ¥5.0 trillion in spending as the government faces a severe cash crunch that could see it run out of money within months.

Officials warned there would not be enough money to cover its expenses as political gridlock ties up passage of a bond-issuance bill needed to help pay for some 40% of Tokyo's spending in the fiscal year to March.

Finance Minister Jun Azumi warned on Friday that public reserves would "mostly dry up at the end of November" if the opposition-led stalemate continued, with the current parliament due to end on Saturday.

They are expected to restart in October. "There is a high possibility that we will have to make further delays in November," Azumi told a regular news conference on Friday.

Tokyo has not been forced to halt budgetary spending due to a funding shortage since the end of World War II, according to the finance ministry.

The spending that would be affected includes tax grants to municipalities, aid for universities and support for government-linked companies, the ministry said.

The delay also threatened to hamper Japan's fragile economic recovery, which has largely been driven by massive government reconstruction spending after last year's quake-tsunami disasters, Azumi said.

Last month, the opposition-controlled upper house slapped Prime Minister Yoshihiko Noda with a censure motion as it demanded he call snap elections.

The non-binding motion, a symbolic wrist slap signalling the opposition's refusal to work with Noda's cabinet, has tied up passage of any new law including the bond bill that was key to covering Tokyo's deficit spending.

Japan has an eye-watering national debt that amounts to more than twice its gross domestic product - the highest among industrialised nations, with the costs of a rapidly ageing population heaping pressure on public coffers.

Legislators passed a bill earlier this year to double Japan's sales tax to 10% by 2015 in a bid to help deal with rising public expenses.

*Follow Fin24 on Twitter, Facebook, Google+ and Pinterest.