• Compiled From Kyodo, Staff Report

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A Cabinet committee endorsed a plan Monday to earmark more than ¥1 trillion for stimulus growth measures in the fiscal 2011 budget, instead of the ¥2 trillion the ruling Democratic Party of Japan has urged the government to allocate for such measures.

The draft also urges each ministry and agency to cut back on requests for policy-related spending in the fiscal year starting next April by 10 percent to squeeze out funds for the special allocation.

Curbing government spending and issues of new government bonds are a huge political challenge for Prime Minister Naoto Kan, who has repeatedly warned that the debt-laden government could face a fiscal crisis similar to the one that hit Greece.

Setting aside more than ¥1 trillion for stimulus purposes will add more political difficulty for Kan, with many DPJ lawmakers calling for more government spending to prop up the reeling economy, particularly in rural areas.

Meanwhile the Finance Ministry, champion of austerity, reportedly didn’t want to clarify a figure for the fresh stimulus when faced with the ¥2 trillion demand from the DPJ. As a compromise, the ¥1 trillion target emerged.

“We described the amount as exceeding ¥1 trillion,” Koichiro Gemba, state minister in charge of public services, told reporters at the prime minister’s office after joining a meeting to discuss guidelines for compiling the budget.

The Cabinet aims to approve the plan, which will serve as a guideline for ministries and agencies in forming their budget requests, at a meeting Tuesday evening.

The government also plans to widely canvass public opinion on what policies should be pursued under the stimulus spending, Chief Cabinet Secretary Yoshito Sengoku said at a news conference.

The DPJ proposed last week allocating at least ¥2 trillion for fresh growth steps within the government’s spending cap of ¥71 trillion for the year through March 2012.

With the proposed special allocation, the DPJ is hoping lawmakers, instead of bureaucrats, will take the lead in compiling the budget.

But Finance Minister Yoshihiko Noda has stressed the government must first revise earlier budgets and press for cutting wasteful spending before specifying any numerical goal for fresh outlays.

The 10 percent budget request reduction is in line with the Finance Ministry goal. However, some DPJ and Cabinet members are against imposing such caps in a uniform manner.

The cut will probably impact policy-related outlays totaling around ¥23 trillion to ¥24 trillion out of the ¥71 trillion, chiefly excluding social security-related expenses and grants to municipalities.

The Kan government has said it will keep general account spending, excluding debt-servicing costs, for fiscal 2011 below ¥71 trillion, almost the same as the level that had been planned for this year, because the nation’s finances are in tatters.

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