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Japan fin minister seeks 2010/11 spending cuts

(Agencies)
Updated: 2009-10-13 15:26

TOKYO: Japan's finance minister said on Tuesday he had called on government ministries to cut their spending plans for 2010/11 compared with this fiscal year as the ruling party looks to deliver on its election promises.

The Democrats, who rode to power in August by promising to spend money to boost household incomes, face a deadline this week to specify their spending plans and redirect funds from an emergency budget compiled by the previous government.

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National Strategy Minister Naoto Kan reiterated on Tuesday that the government was considering whether to compile a second extra budget for the current fiscal year 2009/10 in an effort to stimulate an economy that has just emerged from recession.

Markets fret that the Democrats could increase Japan's borrowing to fund their programmes, expanding a public debt burden that is already the biggest among developed economies.

"I've issued my instructions and other cabinet members have agreed," the finance minister, Hirohisa Fujii, told reporters after a cabinet meeting.

"I recognise that some ministries are tempted to ask for more money, but I strongly hope they cut their budget requests."

Ministries have to submit their spending plans by October 15 for the 2010/11 budget. The Democrats have scrapped a record 52.7 trillion yen ($587.5 billion) spending ceiling set by the outgoing government for the 2010/11 budget.

The spending ceiling for 2009/10 was 47.8 trillion yen.

Pressure to deliver is mounting on the Democratic Party after promising in the election to hand out child allowances, make high schools effectively free, scrap expressway tolls and abolish surcharges on cars and gasoline.

To achieve these aims, the Democrats may have to borrow more, economists say, inflating a public debt burden already equivalent to about 170 percent of GDP.

Prime Minister Yukio Hatoyama has pledged the government will do its best to limit bond issuance and Fujii has said he may be able to issue less bonds, but other government officials have raised doubts.

Japanese Administrative Reform Minister Yoshito Sengoku, who is responsible for cutting wasteful spending from national budgets, said on October 11 that the government will have to sell bonds in 2010/11 due to lower corporate tax revenue.

Investors are already  bracing for as much as 10 trillion yen in extra bond supply simply to make up for the 2009/10 tax revenue shortfall. The 2009/10 bond programme is already a record at 44.1 trillion yen.

The Democrats want to draw up measures to support the labour market as high unemployment and falling wages have become more of a threat to Japan's recovery from its worst recession since World War Two.

"We can't be lax on the economy," Kan told reporters.

"We will need to consider measures that include stimulative factors, which do not involve public works as taken in the past. We may compile a second extra budget including additional stimulus measures, but we won't submit it to a parliamentary session scheduled to be convened this month."

The ousted Liberal Democratic Party enacted a 14 trillion yen extra budget. The new government said in an initial review of those figures that it had identified 2.5 trillion yen in wasteful spending.

The Democrats could release a final review of the extra budget by Friday, but some regional governments and agencies have bristled at the idea of returning money already allocated to them.