Ruling and opposition parties on Monday expressed conflicting views of the government's decision to cut the fiscal 2002 general account budget by 1.7 percent from the initial fiscal 2001 budget, while capping net bond issues at 30 trillion yen.

Taku Yamasaki, secretary general of the dominant Liberal Democratic Party, said the proposed 81.23 trillion yen budget "will certainly help put the economy back on a recovery track from the mid- to long-term perspective, as the government has stuck to the policy of capping net bond issues at 30 trillion yen."

But a senior official of the LDP's Policy Research Council questioned the ability of the budget to pump-prime the economy by generating sufficient demand for goods and services.

"Can structural reform generate domestic demand, although its proponents say the economy cannot grow without structural reform?" the official asked.

Kazuo Kitagawa, chief of the policy research council of New Komeito, an LDP coalition ally, also said the proposed budget won't be enough to rev up the decelerating economy. "The budget cannot be described as adequate when examined from the standpoint of measures to stimulate the economy.

"We must prepare to take strong measures, such as monetary and fiscal policy steps, while monitoring developments in the economy."

Their comments were released soon after the government approved the proposed 1.7 percent cut in the fiscal 2002 budget and endorsed a proposed 2.3 percent cut in general expenditures to 47.55 trillion yen.

A unnamed former LDP Cabinet minister said the government "needs to become aware that the economy has already plunged into a deflationary spiral." A deflationary spiral refers to a condition of continually declining prices, soaring bankruptcies and unemployment, all accompanied by a shrinking gross domestic product.

Some coalition legislators have already begun demanding that the government compile a supplementary budget in the fiscal year starting next April 1, while urging it to adopt an expansionary fiscal policy by suspending its austere position.

Other unnamed government sources said the intracoalition standoff over the austere fiscal policy of Prime Minister Junichiro Koizumi will flare up again from the onset of the new year.

Many coalition legislators are dissatisfied with a proposed 10.7 percent cut in public works outlays to 8.42 trillion yen.

But a senior LDP official said, "We cannot help cutting (public works) outlays because there are not sufficient state revenues."

However, Kiichi Inoue, head of the policy research council of the New Conservative Party, another LDP coalition ally, said his party finds it too severe that the government has conducted sharp cuts "only for budgeted public works outlays" among major spending fields.

An anonymous LDP legislator said, "If we are to stimulate the economy, public works expenditures are the most effective measure."

Meanwhile, opposition parties blasted the proposed fiscal 2002 budget as lacking the muscle to cure the nation's economic ills.

The leading opposition force, the Democratic Party of Japan, teamed up with the Liberal Party to demand a more austere budget, while the Japanese Communist Party called for an expansionary budget.

Katsuya Okada, head of the DPJ policy research council, said the budget is tantamount to scrapping the 30 trillion yen bond cap, saying the budgetary compilation techniques used for the fiscal 2002 budget include steps to hide what is essentially government borrowing.

Hideyo Fudesaka, JCP policymaking commission chief, said: "Structural reform will only have the effect of inflicting severe pain on citizens.

"The economy faces an unprecedented crisis as a result of government support for the job-cutting restructuring plans (of businesses), while the forceful implementation of the speedy disposal of bad loans has resulted in sharp rises in joblessness and corporate bankruptcies."

Some economists warn that a quick disposal of bad loans tends to force banks to cut off new loans to businesses, thus bankrupting cash-strapped firms.