TOKYO (Reuters) - Japan's parliament approved on Monday a 2 trillion yen ($25 billion) extra budget for disaster relief after the March earthquake, paving the way for bigger reconstruction spending that is likely to involve new bond issuance and tax hikes to repay it.
Prime Minister Naoto Kan, under fire for his handling of the nuclear crisis triggered by the magnitude 9.0 earthquake and tsunami, has cited the passage of the extra budget and two other key bills as conditions for keeping his promise to resign.
Passage of the extra budget, the second of its kind, had widely been expected as it was not seen as a contentious issue, but a political impasse over the fate of the unpopular premier is threatening to delay compilation of a future reconstruction budget expected to exceed 10 trillion yen.
With public debt already twice the size of the $5 trillion economy, the heavily indebted government has funded the second extra budget without new borrowing while tapping leftover funds from the previous fiscal year that ended in March.
The second supplementary budget features steps to cope with the radiation crisis at Fukushima Daiichi plant, operated by Tokyo Electric Power Co, and help indebted individuals and businesses in the quake-hit areas secure new loans.
It includes 7 billion yen set aside for a planned organization to handle compensation to victims once a relevant bill is passed by parliament.
The government set up a framework in the extra budget to issue 2 trillion yen in special-purpose bonds to help finance the planned organization, and it earmarked 20 billion yen in the extra budget for interest payments. It also created government guarantees worth 2 trillion yen for the new organization.
($1 = 78.355 Japanese Yen)
(Reporting by Tetsushi Kajimoto; Editing by Chris Gallagher)