Japan will use sales tax hike revenue to expand welfare spending

Japan's Prime Minister Shinzo Abe makes a speech in Tokyo January 6, 2015. REUTERS/Toru Hanai

TOKYO (Reuters) - Japan's government agreed on Tuesday to use revenue from a sales tax increase to boost welfare spending in the coming fiscal year to help citizens in its rapidly ageing society cope with higher costs.

Prime Minister Shinzo Abe's government expects an additional 8 trillion yen (45 billion pounds) in tax revenue for the next fiscal year after raising the nationwide sales tax to 8 percent from 5 percent in April 2014.

In the fiscal year that will begin April 1, the government will spend around 1.35 trillion yen on cash handouts for families with children and to help cover health-care costs, according to a statement from a government advisory panel.

There will also be spending of around 350 billion yen to offset increases in healthcare and nursing care costs due to inflation, the statement said.

Around 3 trillion yen will be used to top up the pool of funds for the pension system and another 3.4 trillion yen will help to lower out-of-pocket costs for the elderly who often require expensive healthcare.

These details will be reflected in the fiscal 2015 budget proposal, which is expected to be approved on Wednesday.

The state budget for the new fiscal year will rise to a record 96.3 trillion yen, two government officials told Reuters.

A surge in tax revenue as the economy recovers allows the government to cut bond issuance by 4.4 trillion yen to 36.9 trillion, the officials said.

Social-welfare spending, such as medical care, is set to rise 1 trillion yen to 31.5 trillion yen, the officials said.

(Reporting by Stanley White; Editing by Richard Borsuk)