The Diet passed a 79.69 trillion yen budget for fiscal 2006 on Monday with the backing of Prime Minister Junichiro Koizumi’s ruling coalition.

With the approval of the budget for the year starting April 1, lawmakers are expected to shift their focus to the upcoming race for the next prime minister and a government blueprint to restore Japan’s debt-ridden finances as well as bills for medium-term reforms to curb administrative and public medical expenses.

“Now that the budget’s passage during the (current) fiscal year is realized, I will work for its smooth implementation from April to consolidate the economic recovery,” Koizumi later told a news conference, adding he hopes to end deflation as soon as possible.

The fiscal 2006 general-account budget is 3.0 percent smaller than the initial fiscal 2005 budget due to spending cuts in a range of policy areas and projected growth in tax revenues for fiscal 2006.

It marks the first time in eight years that an initial general-account budget has fallen below 80 trillion yen. A key feature of the budget is a drop in the issuance of new government bonds below 30 trillion yen for the first time in five years.

Koizumi reiterated that he intends to serve until the end of his term as head of the governing Liberal Democratic Party in September, and voiced hope that someone with a sense of responsibility, insight into policy priorities and passion to realize them succeeds him and his reform path.

The approval process was completed when the House of Councilors voted on the budget Monday evening. The budget, which will cover the new fiscal year that begins Saturday, had already been approved by the House of Representatives.

The revenue-expenditure reform blueprint, to be unveiled in June, may touch on specific levels of spending cuts for key fields, including social security. They could also call for tax increases, including a hike in the consumption tax from the current 5 percent.

Finance Minister Sadakazu Tanigaki has said that along with drastic cuts in government spending in inefficient areas, the consumption tax needs to be raised from the current level, especially given that the rapidly aging population will expand social security costs — the biggest chunk of policy-related expenditures — by 1 trillion yen a year from now.

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