The Kan administration has endorsed a general account budget that is a record-high ¥92.41 trillion for fiscal 2011 — the second budget to be formed under the Democratic Party of Japan government. The budget includes several measures that show the characteristics of the DPJ's policy orientation. But Prime Minister Naoto Kan failed to give a clear direction in prioritizing the DPJ's election pledges under severe financial constraints. A big problem is that the government has to heavily rely on the issuance of a large amount of bonds and has no prospect that it can stop the practice in the near future.

The general account budget endorsed on Dec. 24 is 0.1 percent larger than the previous high of ¥92.30 trillion for the fiscal 2010 initial budget under the Hatoyama administration. For two consecutive years, bond issuance will be larger than tax revenues — ¥44.29 trillion vs. ¥40.92 trillion.

The debt servicing cost will increase 4.4 percent to ¥21.54 trillion. Grants from the general account to local governments will drop 4 percent to ¥16.78 trillion. The actual amount they will receive will rise 2.8 percent to ¥17.37 trillion, with money from special account budgets added. Local government can freely use ¥512 billion given in grants with no strings attached. This partially fulfills the DPJ's promise to abolish subsidies with strings attached from the central government.