The Fiscal System Council, an advisory panel to the finance minister, proposed Wednesday that a “reform-oriented” budget be compiled for fiscal 2003 that restricts government bond issuance and scrutinizes tax grants for local governments.

The proposal, submitted as a report to Finance Minister Masajuro Shiokawa earlier in the day, also urges that the nation’s pension benefit payments be linked fully to price levels and that payments for fiscal 2003 be cut by an amount that reflects price falls over the past three years.

The Finance Ministry will reflect the panel’s proposal in the fiscal 2003 budget.

“We need to have the budget aimed at implementing fiscal reform. We must ease public uncertainties about the future by maintaining fiscal discipline. We also need to streamline government expenditures,” said Takashi Imai, who chairs the panel and is also chairman of Nippon Steel Corp.

Imai also said that expanding fiscal expenditures would only have a limited stimulus effect on the economy.

“Under the current economic situation, there is a call for expanding fiscal spending. But it is clear that this approach, which has been taken up to now, has only a limited effect,” Imai said.

The panel thus called for restraining the issuance of government bonds in order to sustain the country’s fiscal system.

On local government fiscal reforms, the panel said local government spending and national government tax grants to local governments should be reined in.

The panel proposed abolishing the national government role of distributing tax grants to local governments to fill their gap between revenues and expenditures.

The national government’s role should be limited to correcting fiscal inequalities among local governments that are caused by differences in tax revenues, according to the panel.

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