The cabinet on Friday proposed a basic outline for a third 12 trillion yen budget to help fund the reconstruction of disaster-hit regions and help revive the economy.
The Diet still has to approve the plan that will see around 9 trillion yen go toward rebuilding the northern region hit by the March earthquake and tsunami that left 20,000 people dead or missing.
It will help pay for the relocation of survivors and the creation of a fund to revitalise Fukushima Prefecture, the center of the worst nuclear crisis for 25 years after post-tsunami meltdowns at the Fukushima Daiichi plant.
“We will take measures toward full-fledged reconstruction,” Prime Minister Yoshihiko Noda told a cabinet meeting, adding that he would take “a flexible stance” in accommodating the views of the opposition.
The budget also includes outlays for areas hit by a recent deadly typhoon and to supplement the public pension fund that was temporarily used as a funding source for earlier earthquake relief programs, as well as compensation for hepatitis B sufferers.
The government plans to pay for the budget through spending cuts, sale of public assets, tax hikes, bond issuance and use of non-tax revenues.
Noda plans to submit the budget to the Diet by the end of this month.
It comes after two earlier extra budgets, worth 4 trillion yen and 2 trillion yen, with the government estimating the quake damage to be at least 16.9 trillion yen.
The government plans to spend 19 trillion yen in an initial five-year focused phase of reconstruction, followed by more spending programs at a slower pace.
Ministers and ruling party officials have promised to negotiate with the opposition as the budget contains divisive tax hike proposals.
The cabinet confirmed an earlier government decision on a provisional tax hike plan that would raise up to 9.2 trillion yen over 10 years to produce some of the funds needed to rebuild the Tohoku region.
To limit the tax hike to that amount, the government plans to secure another 2 trillion yen in non-tax revenues, including proceeds from the possible sale of its entire stake in Japan Tobacco Inc.
Noda faces opposition to tax hikes from some lawmakers charging that such a move, if timed poorly, could threaten a fragile post-quake economic recovery faced with a soaring yen and weakening overseas demand.
Japan has remained mired in recession for three consecutive quarters.