An advisory panel to the finance minister called Monday for a reform-oriented fiscal 2003 budget that will keep spending for policy measures at current levels to maintain fiscal discipline.

The proposed spending cap would replace Prime Minister Junichiro Koizumi’s 30 trillion yen cap on fresh government bond issues.

The Fiscal System Council presented the package of proposals, which will serve as a base for budget discussions for the next fiscal year, to Finance Minister Masajuro Shiokawa in the morning.

Shiokawa, who said he wants to maintain spending for policy measures, known as general expenditures, under the previous year’s limit of 47.5 trillion yen, submitted the report to the Council on Economic and Fiscal Policy, which is chaired by Koizumi, later in the day.

“The fiscal 2003 budget should be a budget that should focus on carrying out reforms, for two reasons,” Nippon Steel Corp. Chairman Takashi Imai, who heads the advisory panel, told a news conference. “One is to dispel people’s worries by maintaining fiscal discipline, and the second is to obtain the people’s trust in the efficiency of expenditures.”

Imai said that the nation’s worsening fiscal condition has been a main factor in credit-rating agencies’ decisions to downgrade Japanese government bonds.

On Friday, Moody’s Investors Service Inc. slashed its rating on yen-denominated JGBs by two notches to A2, making Japan the only major industrialized country with a single A rating.

The advisory panel said a target should be set for general expenditures to keep them at their current levels as part of efforts to prevent government finances from deteriorating.

The proposed spending cap would replace Koizumi’s fiscal policy rule of limiting new bond issues to less than 30 trillion yen, a vow that served as the guideline for the fiscal 2001 and 2002 budgets.

But the panel also said the “spirit” of the 30 trillion yen limit should be carried over to the compilation of the fiscal 2003 budget, and that efforts should be made to keep any deviation from that policy as small as possible.

Koizumi is facing pressure from critics of his austere fiscal policy to boost government spending to rev up the long-stagnant economy.

“One of the views from overseas is that Japan’s finances are deteriorating rapidly,” Imai said. “Maintaining fiscal discipline is extremely important.”

The panel also said cuts in unemployment and other welfare benefits should be considered to help streamline the overall budget.

As an example, it proposed cutting unemployment benefits for those who quit jobs for reasons other than being fired or laid off — such as to get married or upon reaching mandatory retirement age.

Welfare benefits should also be curtailed to reflect the prolonged deflationary trend, the panel said.

“There is a tendency to allow outlays for welfare without checking them properly. This means that a system should be made so that welfare benefits go to those truly in need,” Imai said.

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