Japan's parliament passed the nation's most austere budget for eight years Monday, marking another achievement for Prime Minister Junichiro Koizumi and his efforts to cut the huge public debt.
The budget reduces spending for the fiscal year to March 2007 by three percent to 79.69 trillion yen (686 billion dollars), the first drop for four years and the first time below 80 trillion in eight years.
The upper house gave the final green light to the plans following their approval by the lower chamber earlier this month.
The bills were passed 134 to 103 in the upper house, which, like the lower house, is dominated by Koizumi's governing coalition after its landslide victory in the September elections.
New bond issues will decline to 29.97 trillion yen, the first figure below 30 trillion yen in five years - a key plank of Koizumi's reform plans.
Koizumi said he would work to implement the new budget smoothly and ensure the world's number two economy continues on a sound recovery path.
"I want to declare the economy is out of deflation at an early stage by taking steadfast steps," he said.
As announced in December, the government has streamlined spending with military and foreign aid cuts while higher corporate tax revenue and a series of recently announced tax hikes also made room for the cut in bond issues.
With passage of the budget, parliament is expected to shift its focus to discussing administrative and fiscal reform aimed at reducing the role of public-sector financial institutions and slashing the number of civil servants.
The passage marks another coup for Koizumi, who triumphed in the September elections last year on a platform for reform and a reduction of public debt, which currently equals over 150 percent of national output.
However, Koizumi has promised to stand down in September and it is unclear who will take up the baton for reform when he has gone.
Despite the cut in bond issues and spending, national debt held by the central and local governments is expected to grow to 775 trillion yen by March 2007 from 770 trillion yen at the end of March 2006, and 410 trillion in 1995.
Japan's debt is the highest among industrialised nations after its government spent trillions of yen on emergency spending packages to try to haul the economy out of its deflation doldrums after the asset bubble burst.
If the debt was stacked in 10,000 yen (86 dollar) bills, it would tower 1,400 times higher than Mount Fuji and 600 times higher than Mount Everest. Japan Post's three trillion dollars in assets are largely invested in government bonds, allowing Tokyo to fund popular but often profligate public works projects such as new roads, bridges and airports.
The public coffers are now so strained that spending would need to be slashed by one-third, or the sales tax hiked to 22 percent, in 2015 to put the government's finances in order, an advisory panel to the finance minister said.
Koizumi indicated last week that a hike in the politically sensitive sales tax, which is now at five percent, may be needed in the future, saying Japanese would have to "share the burden" of reform.
He has ruled out raising the tax during his term and previously said a hike was unlikely before March 2008 but now appears to have softened his position.
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