The Cabinet on Friday approved a 46.8 trillion yen cap on core policy-related outlays in the fiscal 2007 budget, down from 47.5 trillion yen in the fiscal 2006 budget request guidelines and the lowest level in nine years.

But the cap is up from the 46.4 trillion yen in general expenditures in the initial fiscal 2006 budget, suggesting the Finance Ministry will seek further cuts in the upcoming budget compilation process as part of efforts to rein in Japan’s debt-ridden finances.

With the “ceiling” set, government ministries and agencies will use it as a reference in drawing up their budgetary requests for fiscal 2007, which begins next April. The Finance Ministry will take requests by the end of August and use them to draft the next fiscal year’s budget, which it plans to release in December.

General expenditures are a broad category of policy-related discretionary spending that excludes compulsory costs such as debt servicing and tax grants to local authorities.

According to the guidelines, social security outlays — which account for more than 40 percent of general expenditures — will total 20.4 trillion yen in fiscal 2007 budget requests, up 550 billion yen from the initial fiscal 2006 budget.

The government has curbed projected growth in social security spending — estimated at 770 billion yen for fiscal 2007 — by 220 billion yen.

The size of cuts in social security outlays was a major focus in the budget compilation process for the next fiscal year because pension payouts and medical costs have continued to increase amid the rapid aging of Japan’s population.

Public investment expenditures will drop 3 percent from the initial budget for the current fiscal year, and official development assistance outlays will fall 3 percent.

Defense spending will shrink 1 percent, but the decrease does not include costs related to the realignment of the U.S. military presence in Japan, according to a Finance Ministry official.

Education-related spending, excluding personnel costs, will fall 3 percent. But outlays to promote science and technology will stay at the same level as the current year.

Although the government and the ruling coalition are calling for drastic spending cuts, they plan to earmark funds for key areas for growth, including for boosting Japan’s competitiveness and spurring regional economies.

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