The national budget for the year to March 2005 will total 82.11 trillion yen (760 billion dollars), up 0.4 percent from the initial budget for the current fiscal year.

It calls for government borrowing to rise 0.4 percent to 36.59 trillion yen, or 44.6 percent of spending, topping the previous record hit this year.

"It is a problem that medical costs are rising faster than the Japanese economy," Finance Minister Sadakazu Tanigaki told reporters. "We need to make our social security system more efficient."

The budget is based on the government's forecast of 1.8 percent economic growth for the next fiscal year, down slightly from the 2.0 percent expected for the current year.

Parliament is expected to approve the budget after debate when it reconvenes in January for a 150-day ordinary session. The overall figure for the budget rarely changes after parliamentary approval.

Japan plans to turn its "primary balance" -- under which expenditures are covered by revenues -- to a surplus from the current deficit early next decade. Japan has run a fiscal deficit since 1993 as the economy stagnated.

Falling tax revenues and massive pump-priming in the 1990s have led to a deterioration in Japan's fiscal health, with the outstanding debt now forecast at 483 trillion yen, or 12 years' worth of tax revenues in the country's general account, according to finance ministry figures.

The deficit will narrow slightly in the 2004 fiscal year, but it is still projected at 19 trillion yen.

"It is an important step forward towards a surplus in the primary balance at both national and regional levels," Economic and Fiscal Policy Minister Heizo Takenaka told reporters.