The Cabinet on Thursday approved a 47.5 trillion yen cap on core policy-related outlays for fiscal 2006 budget requests.

The general-expenditure ceiling compares with a cap of 48.2 trillion yen set for the fiscal 2005 budget. In the end, core expenditures for the initial budget for fiscal 2005 came to 47.3 trillion yen — 200 billion yen less than Thursday’s limit.

The higher cap for fiscal 2006 compared with the 2005 initial budget is due to mounting pension and health-care costs, which exceed the government’s cost cuts and other measures taken to fight the swelling budget deficit, according to government officials.

“Social security needs to be reformed,” Finance Minister Sadakazu Tanigaki told a news conference. “The reforms might make more aggressive budget cuts possible in the future.”

The fiscal 2006 budget should reflect the government’s aim of creating a smaller and more efficient government, the Cabinet said in a document released with the budgetary ceiling announcement.

General expenditures break down into four sections — pension and health-related costs, fixed costs, discretionary spending, and public works spending.

The largest segment of the budget, 20.1 trillion yen, is allotted to pension and health-related spending, up 3 percent from 19.5 trillion yen in the initial fiscal 2005 budget.

This increase reflects an estimated rise of 580 billion yen in health costs due to the aging of the population. The 580 billion yen is 220 billion yen less than the 800 billion yen requested by the Health, Labor and Welfare Ministry to maintain the same level of health services.

The focus of this year’s budget compilation process will be on what health services the government will cut this year and in the future to lessen health-care costs.

The government also hopes to reduce public works spending by 3 percent to 8.0 trillion yen in fiscal 2006.

The Finance Ministry will give priority to projects aimed at safeguarding against natural disasters, and will also watch that tax revenue is distributed fairly nationwide, a ministry official said.

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