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The government and ruling parties agreed Thursday that the supplementary budget for fiscal 2002 will feature 3 trillion yen in fresh spending, with 1.5 trillion yen earmarked for both public works projects and safety net measures.

But the total size of the extra budget will not be clear until Friday, when Prime Minister Junichiro Koizumi will instruct the Cabinet to make budget preparations, Finance Minister Masajuro Shiokawa said.

Taku Yamasaki, secretary general of the ruling Liberal Democratic Party, told reporters that an additional issuance of government bonds for the extra budget will amount to around 5 trillion yen.

By issuing new government bonds, the government will break the pledge of Prime Minister Junichiro Koizumi to cap the new bond issuance below 30 trillion yen for the current fiscal year.

“We are sorry for not keeping the 30 trillion yen cap on the (new) government bond issuance,” Shiokawa told a news conference. “We want to keep the spirit (of the fiscal discipline) alive in the extra budget.”

The budget agreement was reached during a meeting at the Prime Minister’s Official Residence between Koizumi, economic ministers and senior leaders of the ruling parties — the Liberal Democratic Party, the New Komeito and the New Conservative Party.

The government is now expected to submit related bills to the ordinary Diet session scheduled to start in mid-January.

Shiokawa stressed that the 1.5 trillion yen allocated for public work projects will be spent in order to help structural reforms rather than to fund “conventional” public work projects.

Projects of this kind, which often involve the unwarranted construction of roads and facilities, have been the focus of much public ire.

The government and the coalition leaders also agreed to allocate 1.5 trillion yen toward so-called safety net measures aimed at countering the dual menace of bankruptcies and unemployment.

“We want to make best efforts to prepare for the safety net as we implement the comprehensive (antideflation) package,” said Shiokawa, referring to a package released by the government on Oct. 30.

Deflationary pressure is expected to mount as the government prods banks to speed up their bad-loan disposals.

The government and the ruling parties also agreed to retain the current employment insurance premium of 1.4 percent, based on a ruling coalition demand, Shiokawa said.

The extra budget is also designed to make up for a shortfall in tax revenues, which are expected to came in at least 2 trillion yen short of the initial target of 46.82 trillion yen.

Although the Finance Ministry had estimated the tax revenues shortfall at around 2.8 trillion yen, it is actually likely to be smaller, one coalition source said.

Meanwhile, the ruling coalition asked the prime minister to issue a statement that clearly explains the government’s policy on the antideflation package, tax reforms and the revival of the industrial sector, Shiokawa said.

The government and the ruling bloc had been divided over the size of the budget, particularly over the amount that should be allocated toward public works projects. The government wanted to keep the budget as small as possible, but the ruling bloc wanted a bigger budget in order to boost the sagging economy.

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