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The Cabinet has approved a ¥47.3 trillion ceiling on core policy-related outlays in the fiscal 2008 budget. For the first time since he came to power in September 2006, Prime Minister Shinzo Abe has drawn up the basic framework for a budget. Although the spending ceiling is ¥300 billion higher than the initial budget for fiscal 2007, Mr. Abe has demonstrated his determination to keep a restraint on spending — a basic policy line since the administration of his predecessor Mr. Junichiro Koizumi.

The real battle for reining in spending starts when lawmakers from the ruling bloc start making budgetary demands later this year. The results of this year’s budgetary negotiations will have a great impact on whether Japan can carry out financial reconstruction. Under the ceiling, outlays for public workers will be reduced by 3 percent from the initial budget for fiscal 2007. While the graying of the population is expected to push up pension, medical and other social welfare costs by ¥750 billion, the government will cap the rise in social welfare outlays at ¥530 billion. Defense spending and subsidies to universities will decrease by 1 percent while expenditures to promote science and technologies will level off.

The Cabinet also decided to double the limit of budgetary requests for five key policy areas to ¥600 billion from fiscal 2007, reflecting government leaders’ realization that calls to revitalize regional economies and narrow the gaps between the haves and have-nots are strong. The five policy areas are: boosting economic growth, revitalizing regional economies, resuscitating education, protecting the environment and ensuring the safety of people’s livelihoods.

Lawmakers from both the ruling and opposition blocs must use their ingenuity to foster strong regional economies without relying on public works. Utilizing local resources, human and otherwise, to create new industries must be considered seriously. Lawmakers and the government also must find new financial sources by strictly reviewing traditional spending that has been used to promote vested interests.

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