Japan will set a medium-term cap on government spending in a bid to strengthen its commitment to fiscal belt-tightening in a draft proposal, government and ruling party sources said on Sunday.
The draft of the government's annual fiscal and economic blueprint limits the rise in general-account spending to a total of 1.6 trillion yen ($13 billion) for the three years to March 2019, two years before its target year of a budget surplus excluding interest payments, the sources told Reuters.
Such a spending cap would be a victory for fiscal hawks like Finance Minister Taro Aso and Tomomi Inada, policy chief of Prime Minister Shinzo Abe's Liberal Democratic Party.
But the draft proposal represents a compromise with officials like Economy Minister Akira Amari, who favour emphasising economic growth to fix Japan's huge debt and want to avoid single-year spending caps.
In a nod to the pro-growth camp, the draft also says the government would take into account ongoing economic conditions, suggesting flexibility in the event on economic weakness, the sources said.
The draft will be submitted on Monday to Abe's top economic advisory panel, the Council on Economic and Fiscal Policy, and could be revised before his cabinet approves the final plan on June 30.
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