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Prime Minister Junichiro Koizumi on Friday instructed the Cabinet to start work on the specifics of a supplementary budget for fiscal 2002 and pushed for further tax cuts to revitalize the economy.

The extra budget, expected to be worth around 6 trillion yen, is aimed at accelerating structural reforms and financing a recently announced antideflation package.

The government plans to allocate 3 trillion yen for fresh spending measures while the rest would make up for a shortfall in tax revenues and increased mandatory expenses.

In a written statement, Koizumi said the government and the ruling parties should also prepare for “sufficient” tax cuts for fiscal 2003, expanding the “more than 1 trillion yen” amount he had proposed earlier.

With the compilation of the extra budget, the prime minister will be forced to break his promise to keep the issuance of new government bonds below 30 trillion yen for the current fiscal year, which ends March 31.

“When considering tax revenues for fiscal 2002, the compilation of a supplementary budget is necessary,” Koizumi said in the statement. “I have decided to take this opportunity to further strengthen policies for structural reform to deal with the current financial and economic situation.”

Finance Minister Masajuro Shiokawa said the amount of new government issuances to finance the extra budget has yet to be decided, although it is widely viewed that the amount will be around 5 trillion yen.

During Friday’s Cabinet meeting, Koizumi said 1.5 trillion yen will be earmarked for public works by selecting projects that have an immediate effect on the economy.

The extra budget also includes 1.5 trillion yen to bolster employment efforts and measures to help smaller companies because a government policy to speed up the disposal of bad loans is likely to increase bankruptcies and unemployment.

The bad-loan plan was announced Oct. 30 in a comprehensive package of antideflation and financial system stabilization measures.

Koizumi reiterated a target of realizing a sustainable fiscal system by early 2010 by achieving a primary balance, a measure of fiscal health.

A primary balance refers to a balance between direct public expenditure that does not include the redemption of government bonds, and revenues directly received from the public, namely taxes.

The government plans to submit the budget to the Diet during the session that convenes in January, with the prime minister instructing ministers to draw up requests for spending by Nov. 27, government officials said.

Meanwhile, ministers defended Koizumi’s policy, denying charges that he has d abandoned his austere budget policy by issuing new government bonds for the current fiscal year.

“The economy is a living thing,” said Chief Cabinet Secretary Yasuo Fukuda, the government’s top spokesman. “We have to keep going with structural reforms while trying to improve fiscal conditions and paying attention to the current state of the economy. This can’t be summed up as the government has changed a policy.”

“The government is trying to compile (the budget) based on a clear idea of accelerating structural reforms,” said Atsuko Toyama, minister of education, culture, sports, science and technology. “This should be considered reinforcement of the previous policy, rather than a shift in policy.”

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