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Quieting fears, Japan passes record budget

TOKYO -- Japan approved its biggest ever budget Tuesday, as an improving economy and a sales tax hike made room for more defense spending and the first step towards achieving a balanced budget.

Japanese Prime Minister Shinzo Abe's cabinet rubber-stamped a plan that will see the government spend 95.88 trillion yen (US$922 billion) in the year from April 2014, up from 92.61 trillion yen the previous year.

The figure is the largest in Japan's history due to changes in accounting rules and the sales tax, which will rise from five percent to eight on April 1.

The budget came on the day that a key government report dropped the word “deflation” for the first time in more than four years, saying the economy “is on the way to recovery at a modest pace.”

The lion's share of the extra revenue generated by the sales tax rise is ear-marked for spending on snow-balling medical fees and other social welfare costs.

Even so, the projected primary balance deficit — the shortfall between what the government gets and what it spends on everything apart from debt-servicing — is expected to shrink by 5.2 trillion yen to 18.0 trillion.

That means Japan's national debt — already the highest proportionately in the industrialized world — will continue to rise, but at a slower pace.

The government's official policy is that Japan's primary balance should be in surplus by 2020, although most analysts expect that target to be missed.

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