The government and the ruling coalition have finally agreed on spending cuts — at least 11.4 trillion yen over the next five years — but only after overriding the objections of top Liberal Democratic Party executives in the House of Councilors.

Half of the Upper House is up for election next year, and traditionally the LDP would be busy trying to increase the budget pie, spurred on by strong demands from local and support organizations.

There is a common perception that the LDP has been changed under the five-year-long administration of Prime Minister Junichiro Koizumi. But has it really?

Political pundits say the question cannot be answered until the next budget is compiled at the end of this year and the LDP reveals where it truly stands on spending.

When LDP Policy Research Council Chairman Hidenao Nakagawa presented the spending cut proposal — at Koizumi’s instruction — during a consultative meeting of the government and the ruling parties at the Prime Minister’s Official Residence on Monday, objections were raised by the LDP’s Upper House executives.

“We are fully opposed to the reduction proposal, which cannot win the understanding of local constituencies,” fumed Mikio Aoki, chairman of the general assembly of the LDP’s Upper House caucus.

“It is hard to explain (to voters) a uniform reduction in local public works projects,” added Toranosuke Katayama, secretary general for the LDP’s Upper House contingent.

Opponents of the plan said due consideration should be given to central government allocations for local governments and public works spending to retain the support of voters in rural areas already unhappy about what they perceive as a widening of disparities with urban areas.

It is also important to provide incentives to local assembly members and industrial organizations that effectively serve as the party’s campaign staff, said the opponents, who fear for their survival in the Upper House election.

But Nakagawa, one of Koizumi’s closest aides, has a different election strategy. He believes demonstrating the government’s and ruling parties’ resolve to cut spending and minimize the size of any future consumption tax hike will win support from urban voters with no party affiliation.

It was the strong support from such voters that led to the LDP’s historic landslide win in last September’s House of Representatives election.

Due to the strong opposition voiced by Aoki and other LDP Upper House executives, a cosmetic settlement was reached in which reductions in the budget allocations to local governments were not specified in Monday’s agreement.

Nakagawa, dissatisfied with the pact, later told a meeting at LDP headquarters, “The public is seriously concerned that the continuation of profligate budgets will gravely affect future generations.”

But an Upper House member who was present at the meeting said, “If the economy deteriorates as a result of these spending cuts, we are the ones who are going to be in trouble.”

The main battlefields of the LDP’s intraparty confrontation over spending cuts were discussions at project team meetings on each field of policy. At a public works project team meeting on June 22, LDP executives proposed a five-year-long continuation of a 3 percent cut in public works spending from the previous year.

But opposition erupted, chiefly from Upper House members. One said, “There are some public works projects that the country needs,” while another said, “Public works projects are all too often treated as the bad guy.”

No conclusion was reached at a consultative meeting of the government and the ruling parties held the next day, and the issue was finally settled with an agreement that the annual rate of reduction will be between 1 percent and 3 percent.

At a project team meeting in the field of local fiscal policy, cautious views were expressed about the LDP executives’ proposal to cut spending by local governments mainly with a reduction in the number of their employees.

“We won’t be able to gain local understanding with this proposal,” one meeting participant said.

Aoki and Katayama met face to face with Finance Ministry officials and succeeded in putting the brakes on the reduction margin.

As for the target for the rate of reductions in public works projects of between 1 percent and 3 percent, a Finance Ministry official said, “If it is fixed at a uniform 3 percent, the whole framework will be destroyed if that rate collapses for some political reason.”

The executive thus indicated there is a limit to reductions in public works projects in compiling the fiscal 2008 budget, which will begin when campaigns for the Upper House election are in full swing.

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