By Takaya Yamaguchi

TOKYO (Reuters) - Japan's government plans an initial budget of a record 97.45 trillion yen ($830 billion) for fiscal 2017, while keeping new debt issuance just below this year's level, a draft of the budget seen by Reuters showed.

The planned budget poses a challenge to Prime Minister Shinzo Abe's efforts to streamline spending and proceed with fiscal consolidation to rein in the industrial world's heaviest debt burden.

It presents a test of the premier's resolve to achieve a primary budget surplus - excluding debt servicing and new bond sales - by fiscal 2020, which is seen as difficult.


The general-account budget spending for the fiscal year to begin on April 1 marks an increase from this year's 96.7 trillion yen, the draft showed, reflecting snowballing social security spending to fund the cost of services for Japan's fast-ageing population.

The government aims to approve the fiscal 2017 budget draft at a cabinet meeting on Thursday, along with a small third extra budget for the current fiscal year.

Tax revenue for the fiscal 2017 will be forecast at 57.71 trillion yen, up just 110 billion yen from this year, the draft showed.

The government plans to sell new bonds worth 34.37 trillion yen, which would be a nine-year low and slightly below this year's initially-planned 34.43 trillion yen.

To curb new bond issuance, the government will tap bigger non-tax revenue of 5.37 trillion yen, compared with this fiscal year's 4.69 trillion yen, the draft showed.

The government is also set to reduce debt-servicing costs, thanks to rock-bottom interest rates under the Bank of Japan's yield curve control policy.

($1 = 117.32 yen)

(Writing by Tetsushi Kajimoto; Editing by Chang-Ran Kim and Richard Borsuk)

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