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A government panel has approved the basic framework of draft guidelines on economic and fiscal policies that center on Prime Minister Junichiro Koizumi’s reform initiatives, including comprehensive reform of the national budget.

Members of the Council on Economic and Fiscal Policy agreed on the framework at their meeting Thursday, although further work on the wording of some items is necessary, such as an overhaul of the social security system, Economic Minister Heizo Takenaka said.

The draft calls for a reduction in the percentage of public investment to gross domestic product over the medium term and a review of the use of special tax revenues earmarked for road construction.

The draft says economic recovery will not be achieved without structural reform and calls for a thorough resolution to the nonperforming loan issue.

Turning to the framework for the fiscal 2002 budget, the draft says the new issuance of government bonds will be limited to 30 trillion yen and calls for prioritizing spending in areas such as the environment, urban development and dealing with the aging society.

Takenaka said the guidelines will be a blueprint of reform efforts by Koizumi. who has said a full-fledged economic recovery cannot be achieved without drastic reconstruction of the nation’s economic and social systems.

As part of such efforts, the draft recommends further deregulation and promotion of competition policies.

It also calls for tax reform to reinvigorate economic activity, and for the creation of 5 million new jobs over the next five years to help revitalize the labor market.

The 10-member council in the new Cabinet Office, created in a major realignment of government entities in January and headed by the prime minister, consists of five ministers, Bank of Japan Gov. Masaru Hayami and four private-sector experts. It is tasked with setting basic budgetary and economic policies.

The draft says budget streamlining is essential because the use of special revenues and long-term public works projects are a major cause of the rigidity of the state budget.

It stresses the need to review the relationship between the central and local governments and says local governments should be more self-reliant. The draft urges local governments to play a greater role in infrastructure establishment.

According to the draft, the central government needs to shift its focus from proportionate development of local areas and introduce competition among local governments to generate economic vitality.

As for reform of the social security system, the draft calls for dramatic changes in response to the aging society, such as the introduction of a social security numbering system to track individual pension, medical and nursing-care costs.

Health Minister Chikara Sakaguchi, who submitted a report to the meeting, said it may not be appropriate to introduce the social security numbering system from the viewpoint of cost and protection of privacy.

Takenaka said further discussions are necessary.

The draft recommends further deregulation of the medical and nursing-care sectors, and proposes establishing a program to seek greater efficiency in medical services.

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