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The Cabinet on Friday approved fiscal 2002 budgetary request guidelines that will cut general expenditures by some 900 billion yen to around 47.8 trillion yen, marking the biggest contraction ever.

The guidelines, compiled the previous day by the Council on Economic and Fiscal Policy and endorsed by the governing coalition parties, also mark the first contractional budgetary ceilings since fiscal 1998.

On that occasion, former Prime Minister Ryutaro Hashimoto was the leader trying to implement fiscal and structural reforms.

The contractional budgetary ceilings, however, may ignite a mad scramble for spending funds among a variety of vested interests.

These include Liberal Democratic Party lawmakers with special ties to the construction industry, local governments and prefectural assemblies.

The guidelines determine the amount of funds ministries and agencies are entitled to request for general expenditures, which cover basic government operations such as public works, defense, social welfare and other policy-related measures.

Based on this framework, ministries will submit their requests by the end of the month to the Finance Ministry, which will then draft a budget bill that will be finalized by yearend.

In a statement issued after the budgetary ceilings were approved at a Cabinet meeting Friday evening, Prime Minister Junichiro Koizumi said, “The Koizumi Cabinet as a whole is eager to formulate a budget worthy to be called a ‘budget for resolute reforms,’ by drastically reducing allocations toward expenditures that should be reduced, while radically allocating expenditures to areas where necessary.”

In a bid to deliver Koizumi’s fiscal reform promise to keep annual government bond issuance below 30 trillion yen, the guidelines pledge drastic cuts in conventional spending while allocating more for new areas where public spending is expected to help stimulate private demand.

To reduce about 900 billion yen from the current 48.7 trillion yen in general expenditures, the guidelines aim to cut back on public works spending and official development assistance by 10 percent.

By eliminating wasteful projects and cutting back on the rest, the budgetary ceilings aim to slash public works spending by 1.04 trillion yen to 9.3 trillion yen in fiscal 2002.

Spending cuts on ODA, which comes to 1.02 trillion yen in the current budget, will amount to slightly more than 100 billion yen. Overall policy-related expenditures will also be cut by 10 percent — worth some 850 billion yen.

The guidelines allow for an increase of up to 20 percent, 800 billion yen, with regard to budgetary requests in seven strategic areas: information technology, urban redevelopment, the environment, the aging population, revitalization of local communities, science and technology, and human resources development.

Ministries will initially be allowed to increase budgetary requests related to these key sectors by up to 20 percent, but after the varying requests’ merits are evaluated, the actual total increase will be limited to 10 percent.

Budget requests related to the key areas can be submitted until the end of September, while other requests are due Aug. 31.

On the issue of social welfare spending, which the Finance Ministry had estimated would need a 1 trillion yen increase, it was decided the increase would be limited to 700 billion yen.

This will raise social spending to 18.1 trillion yen next year, while the cuts necessitate far-reaching reforms to the nation’s medical care system.

Under the guidelines, the salaries of government employees and other administrative costs will be increased by just 50 billion yen, bringing the total spending in this area to 12 trillion yen — the same as that for fiscal 2001.

On the basis of the general account budget, which includes additional spending such as debt-serving costs and local tax grants, the government aims to earmark 2 trillion yen for the seven priority areas when the fiscal 2002 budget is finalized at yearend, while aiming to cut spending on other areas by as much as 5 trillion yen.

This will enable the government to reduce some 3 trillion yen from projections that it will need issue bonds worth 33.3 trillion yen to meet fiscal 2002 expenditures.

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