Japan nudges up budget spending cap

The Japanese government nudged up the cap for general spending in its budget for next fiscal year on Monday, mainly to fund increasing social security costs as the population ages. Finance Minister Fukushiro Nukaga said the limit on spending in the general account budget for the fiscal year to March 2010 would be 47.8 trillion yen ($443 billion), up from 47.3 trillion yen this fiscal year.
The budget guidelines, which exclude new debt issuance and servicing, also stipulate steps to rein in increases in social security costs by 220 billion yen to 650 billion yen and to reduce spending on public works by 3 percent year-on-year.
Although the government has sought austere budgets in the last few years in the face of a mountain of public debt, pressures to increase spending from ruling lawmakers are growing as they fear losing favour with their constituents. The ruling Liberal Democratic Party's policy research chief, Sadakazu Tanigaki, on Monday called for a more aggressive fiscal policy to avoid an economic slowdown, according to Kyodo news.
The finance ministry has earmarked 300 billion yen in the general account that allows spending deemed particularly urgent and important, among key factors listed in the government's 2008 policy guidelines. That amount increased from about 50 billion yen in the current fiscal year's budget. The government has also vowed to increase the number of medical doctors in response to growing public frustration with the scarcity of practitioners in rural areas, especially obstetricians.
The government will squeeze out funding for the extra spending by further cutting public works and other items. The guidelines are expected to be approved by the cabinet on Tuesday. The finance ministry will then negotiate with other ministries on their budget requests until it draws up a budget draft, usually sometime in late December.
Japan's public debt is expected to reach 778 trillion yen by next March, nearly 150 percent of the country's gross domestic product, the worst ratio among major industrialised economies.
The government has a self-imposed target of making a surplus in the so-called primary balance, which is revenue excluding new debt issuance subtracted from general spending excluding debt-servicing costs, in the budgets for both central and local governments by fiscal 2011/12. Plans hammered out by the government and ruling parties in 2006 stipulated that natural increases in social security spending be curbed by 220 billion yen each year for five years as part of efforts to achieve a primary-balance surplus.