* Budget presents test of PM Abe's resolve to fix public
* Abe counts on weak yen, low interest rates to limit
* Welfare costs boost spending, military, infrastructure
* Analysts doubt fiscal discipline at work, demand spending
TOKYO, Dec 22 Japan's cabinet approved on
Thursday a record $830 billion spending budget for fiscal 2017
that counts on low interest rates and a weak yen to limit
borrowing, underscoring the challenge Tokyo faces in curbing the
industrial world's heaviest debt burden.
The 97.5 trillion yen ($830 billion) general-account budget
for the fiscal year starting on April 1 marks an increase from
this fiscal year's initial target to spend 96.7 trillion yen,
the Ministry of Finance said on Thursday.
The budgeted plan highlights a struggle Prime Minister
Shinzo Abe faces in curbing spending, which is a key to his
ambitious aim of achieving a primary budget surplus - excluding
debt servicing and new bond sales - by the fiscal 2020.
Higher spending stems from a snowballing social security
bill to fund the cost of services for Japan's fast-ageing
population. A record military outlay and rising infrastructure
costs also push up the overall spending.
On the other hand, tax income growth is seen slowing from
this fiscal year, prompting the government to tap more non-tax
revenue by using investment returns from foreign reserves, which
stem from a weak yen and rising U.S. interest rates.
"We cannot count on a weak yen indefinitely to raise revenue
given the risk of the currency's rises," said Takuya Hoshino,
economist at Dai-ichi Life Research Institute. "To balance the
budget, we must review spending through welfare reform that may
be painful for the elderly."
Tax revenue for the fiscal 2017 is estimated at a 26-year
high of 57.7 trillion yen, up 110 billion yen from this year's
initial budget but slowing sharply from the pace of increase
seen in recent years since Abe took office in late 2012.
The government plans to sell new bonds worth 34.37 trillion
yen, slightly below this year's initially-planned 34.43 trillion
yen, bringing debt dependency ratio to 35.3 percent, a nine-year
Debt-servicing costs will be reduced by 83.6 billion yen to
23.5 trillion yen, as the government assumed interest rates at a
record low of 1.1 percent thanks to rock-bottom borrowing costs
under the Bank of Japan's aggressive monetary stimulus.
To curb new bond issuance, the government will tap non-tax
revenue of 5.4 trillion yen such as investment returns worth 2.5
trillion yen from foreign reserves. That marks an increase from
4.7 trillion yen in this fiscal year's initial budget.
Social security spending, the budget's biggest item, will
rise 499.7 billion yen to a record 32.5 trillion yen, in line
with the government's mid-term fiscal plan to limit rises in
welfare outlays to 500 billion yen a year.
Defence spending hit a record 5.1 trillion yen, rising for a
fifth straight year to cope with North Korea's missile threats
and China's moves in the East China Sea.
Public works spending will increase for a fifth consecutive
year to 6 trillion yen to beef up infrastructure to cope with
natural disasters and promote projects aimed at spurring growth.
($1 = 117.5400 yen)
(Reporting by Tetsushi Kajimoto and Minami Funakoshi; Editing
by Shri Navaratnam)