The Cabinet approved plans Tuesday to delay the deadline for funds requests made by ministries for the fiscal 2012 budget by a month, citing work on the third supplementary budget and Prime Minister Naoto Kan’s imminent resignation.
Kan officially announced his intention to resign next week.
Finance Minister Yoshihiko Noda also asked ministries for a 10 percent cut in so-called policy spending for the next fiscal year’s budget so funds can be earmarked for social security costs.
Government agencies and ministries are asked to submit their funding requests to the Finance Ministry by the end of August, but this year the closing date will be Sept. 30, Noda said.
“We are at a transition stage from the current Cabinet to the new Cabinet,” said Noda, himself a candidate in the Democratic Party of Japan presidential race to find a successor to Kan. The next DPJ leader will likely be elected Monday.
Noda added that the supplementary budget, which will include major allocations for restoring the disaster-hit Tohoku region, cannot be put aside.
According to an outline released Tuesday by the Finance Ministry, general account spending for fiscal 2012 will be kept at less than ¥71 trillion, or at the same level as the fiscal 2011 budget. Spending related to Tohoku’s reconstruction and subsidies for hepatitis B patients will be handled separately from the general account.
Issuance of new bonds will be limited to ¥44 trillion, the same as this year, the ministry said.
The government will “make necessary cuts and create a budget that puts priority on urgently needed policies,” Noda told reporters, adding that despite the delay for allocation requests, the Cabinet intends to approve the final budget plan by the end of December.
As a preliminary guideline for making requests, the Finance Ministry put out a principle for the budget plan that calls for a 10 percent policy spending cut that is to pay for an extra ¥1.2 trillion in additional social security costs in 2012. Policy spending does not include necessary outlays such as employment costs.
A part of the 10 percent cut will also be set aside for projects prioritized by the next prime minister, according to the Finance Ministry.
Some budget items are excluded from the list of spending cuts. They include money the central government pays local governments, social security costs such as medicine and pensions, subsidies for farmers and money to cover public high school tuitions that students will stop paying in the next school year.
Tuesday’s proposal by the ministry is in line with the midterm fiscal policy plan released by the government earlier this month that calls for turning around the combined primary budget balance by 2020.
Contingency plan for yen
Finance Minister Yoshihiko Noda said Tuesday the government could use its contingency funds to finance rescue measures for industries coming under pressure from the rising yen.
Noda said the government is keeping a close eye on speculative moves in the currency market to prevent any excess volatility in the value of the yen.
“I think it is possible to consider” using government contingency funds, he told reporters, referring to possible measures to ease the negative impact on Japanese industries from the yen’s advance against the dollar and other major currencies.
The comment added to the view held by some other ruling party lawmakers that the government should respond swiftly by using reserve funds to defuse tension over expectations that Japanese manufacturers will accelerate their relocation of production abroad to cut costs.
Utilizing the funds is an option that could be implemented faster than other steps, including forming an extra budget.
Noda earlier said the government could give incentives to domestic manufacturers to remain in Japan by using a slice of funds under an envisaged third supplementary budget for fiscal 2011, which will mainly be aimed at financing reconstruction work following the March 11 earthquake and tsunami.
“There is no doubt that the excess strength of the yen will have a negative impact on the Japanese economy at a time when we are making every effort” to rebuild disaster-hit areas, he said. “Now we are closely watching whether there are any speculative moves” in the market.
Noda scolds bureaucrat
Finance Minister Yoshihiko Noda on Tuesday criticized recent remarks by one of the top bureaucrats in his ministry that were taken by the currency market as suggesting Japan is not eager to intervene and weaken the yen.
“Under these circumstances in which many (market players) are paying particular attention, such a key person should be careful about his remarks,” Noda told a Diet committee, referring to Vice Finance Minister for International Affairs Takehiko Nakao.
Nakao, Japan’s top financial diplomat who took office earlier this month, said in an interview with The Wall Street Journal on Friday that the Finance Ministry and the Bank of Japan “don’t have plans to intervene often,” adding, “we don’t use intervention as a daily tool.”