Shinzo Abe agrees increased budget spending for Japan Japan's government has agreed a record initial budget for the coming fiscal year, under which it will increase spending on defence, public works and social security even as it aims to cut borrowing, thanks to an expected jump in tax revenues. Shinzo Abe, the prime minister, and leaders of his ruling coalition gave the go-ahead on Saturday for Y95.88tn ($921bn) in spending for the year beginning in April 2014, an increase of 3.5 per cent over this year's initial budget. The plan, which is expected to be given formal cabinet approval on Tuesday, calls for Y41.25tn in new bond issuance, down by Y1.6tn from the borrowing required to finance this year's budget. An improved economy and the implementation of a sales tax rise from April are expected to boost tax revenues by more than 15 per cent, allowing the world's most indebted government to borrow less even as it spends more. "This is a big step toward achieving our fiscal consolidation goals in 2015 and 2020," said Taro Aso, the finance minister, referring to a government pledge to cut the deficit, minus interest payments, in half in the next two years and eliminate it by the end of the decade. Initial budgets rarely give a full picture of public spending in Japan, however, since governments often order supplementary expenditure packages during the course of the year. Mr Abe, who is pursuing a stimulus-focused economic policy known as Abenomics, aimed at reviving growth, has ordered two: a Y13tn extra budget in January, including Y10tn in stimulus spending, and another Y5.5tn of fresh stimulus earlier in December. The latter package is intended to offset the effect of April's tax increase on the economy. If Mr Abe does not order another supplementary budget next year, actual spending would fall from this year's level. Japan's gross public debt is approaching the equivalent of two and a half years" economic output, though financing costs remain low relative to the vast scale of its borrowings. Ultra-low interest rates and the de facto underwriting of much recently issued debt by the Bank of Japan, its central bank, has helped. And unlike in crisis-hit countries such as Greece, the vast majority of Japan's debt is held by domestic creditors, protecting it against the risk of a sudden drying up of foreign capital. The debt has expanded over the past two decades due to a combination of weak tax revenues and the rising cost of healthcare and pensions for Japan's rapidly ageing population. Japan also spent heavily on public works in an effort to prop up the economy after its asset bubble burst in the 1990s, adding to the debt pile. Social security spending is now the largest component of Japanese budgets, and next year it will rise by Y1.4tn to Y30.5tn, according to officials briefed on the broad breakdown of the budget. Mr Abe's priorities are visible in the growth of both public works and defence spending, each of which is to rise by about 2 per cent. Both categories of expenditures had been shrinking steadily for a decade before Mr Abe won election a year ago, but the premier began working to reverse the decline soon after he took office, with his first supplementary budget. In December Mr Abe's cabinet approved a 10-year national security strategy along with nearer-term guidelines calling for Y24.7tn in defence spending over the next five years, an increase of roughly Y1tn compared with Japan's previous five-year policy, passed by a previous government.