Deputy Prime Minister Naoto Kan, who is in charge of national strategy, and his staff have started reworking fiscal 2010 budgetary requests that total more than ¥95 trillion, a record amount. Given Japan’s difficult financial situation, the main task before them is to prioritize items included in the budgetary requests.

Specifically, that means reducing the amount of appropriations aimed at carrying out promises contained in the Democratic Party of Japan’s election manifesto.

Financial prospects for the Hatoyama administration are gloomy. While budgetary requests top ¥95 trillion, tax revenue for fiscal 2009 and 2010 is expected to come in at less than ¥38 trillion and ¥40 trillion, respectively. It is clear that it will be extremely difficult for the government to achieve the goal of limiting the issuance of deficit-covering bonds to no more than ¥44 trillion. Thus it appears inevitable that the government will have to reduce spending on some DPJ election promises.

The promises included monthly child-rearing allowances, tuition-free public high schools, income compensation of farmers growing staple crops, abolition of surcharges on road-related taxes, and toll-free expressways. The budgetary requests show that ¥6.9 trillion would be needed in fiscal 2010 to carry out the main election promises.

For example, the welfare ministry calls for ¥2.255 trillion for child-rearing allowances (¥13,000 per child per month up to the third year of middle school); the transport ministry asks for ¥600 billion to make expressways toll-free on a trial basis; and the farm ministry requests ¥561 billion for income compensation of rice farmers.

Mr. Kan and his staff may have to drastically reduce some budgetary requests or postpone some of them altogether. They must do this without negating the basic philosophy behind each promise. They will face a turf war with the Finance Ministry, which is intent on reducing budget size in general. Whatever they decide, the important thing is that they convincingly explain how they reach their decisions.

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