A government-proposed fiscal reform bill to designate specific reduction targets for key budget areas became law Friday when it was passed by the Upper House during a plenary session.

The bill passed the Lower House earlier this month. It obliges the government to cut the fiscal deficit to 3 percent or less of the gross domestic product by fiscal 2003, and terminate the issue of deficit-covering bonds by the same year.

It sets targets for spending reductions in a wide range of areas. The bill constitutes an important part of Prime Minister Ryutaro Hashimoto's policy pledge to salvage the nation's coffers from debt.

Despite the bill's passage, calls have been mounting among lawmakers, including some within Hashimoto's Liberal Democratic Party, for a government decision to infuse public funds into the nation's financial system amid the current turmoil and a series of failures of financial institutions.

The highlights of the bill are as follows:

1) Reduce the nation's budget deficit to 3 percent or less of the GDP by fiscal 2003 from the current fiscal year's 5.4 percent.

2) Cut issuances of deficit-covering bonds by an average of 1.25 trillion yen annually and pare the deficit by 0.43 percent of GDP every year, with the aim of terminating bond issues by fiscal 2003.

3) Limit the increase in social security costs for fiscal 1998 to 300 billion yen instead of the estimated natural increase of 850 billion yen.

4) Reduce public works spending for fiscal 1998 by at least 7 percent from the current fiscal year.

5) Defense-related budgets between fiscal 1998 and 2000 should not exceed the levels of the previous fiscal years' budgets. Expenditures for implementing recommendations by the Special Action Committee on Okinawa to reduce and realign military bases in the island prefecture will not be categorized as being part of the defense budget.

6) Disbursement in official development assistance in fiscal 1998 should be shaved by at least 10 percent from the current fiscal year.

7) Expenditure for science and technology for fiscal 1998 should be allowed to grow up to 5 percent from the current fiscal year.

The bill passed 136 to 100, and was backed by the ruling LDP and its two smaller allies, the Social Democratic Party and New Party Sakigake. All opposition forces, including the Heiseikai parliamentary group consisting of Shinshinto and Komei, and the Democratic Party of Japan and the Japanese Communist Party, voted against the bill.

During the plenary session, Kiyohiro Araki of Heiseikai severely criticized the bill, saying Hashimoto is making another terrible mistake in enacting the bill and it will only further cool down the nation's economy. "Now it is certain that the current economic slump has been caused by the Hashimoto administration's decision in March to impose on the public a financial burden of more than 9 trillion yen in various forms ranging from the consumption tax hike, higher medical bills, and the abolition of special cuts in income and residential taxes," he said. "The new bill would certainly lead to putting another damper on the already sluggish economy, resulting in less tax revenues, leading to further aggravation of the fiscal health," Araki argued.