Japan to shelve spending cut policy to spur economy

TOKYO, Dec. 3 Kyodo - Japan will shelve its spending cut policy in compiling the budget for fiscal
2009 in a bid to prioritize stimulus measures over efforts to improve the
nation's fiscal health, according to the government's basic guidelines for
budget formulation adopted Wednesday.
The Cabinet of Prime Minister Taro Aso endorsed the basic guidelines Wednesday
evening. The written policy stipulates that the government will ''decisively
take prompt and flexible actions'' to shore up the economy, which ''has entered
into a recessionary phase'' amid the global financial crisis.
Aso told reporters that the world has been experiencing a financial calamity
that could occur only once in 100 years, and that the government will ''firmly
respond to the changing conditions'' of the Japanese economy, which he compared
to a ''living creature.''
The premier vowed to swiftly compile the budget for the fiscal year starting
April 1 based on the guidelines. The government is scheduled to adopt a draft
fiscal 2009 budget in late December.
In the guidelines, the government backpedaled on its fiscal rehabilitation
efforts, as it softened expressions regarding a spending reduction policy set
in fiscal 2006 by the administration of then Prime Minister Junichiro Koizumi,
who spearheaded structural reforms.
The Cabinet of Aso's predecessor Yasuo Fukuda confirmed in July that the
government will continue to slash spending on public works projects by 3
percent from a year earlier and keep curbing the natural increase in social
security costs caused by the rapid aging of the population by 220 billion yen
in the fiscal 2009 budget.
The latest guidelines said the government will ''maintain'' that policy, rather
than ''firmly adhere to'' it as written in an earlier draft.
Aso justified the modification, saying economic conditions since September this
year have been ''totally different'' from the situations experienced by his
predecessors.
The premier reiterated his resolve to cure the Japanese economy in three years
by implementing economy-boosting steps and conduct fiscal reforms over the
medium term.
The written policy said the government will heed the Nov. 15 joint declaration
in Washington by leaders of the Group of 20 major economies, which said that
they will ''use fiscal measures to stimulate domestic demand to rapid effect,
as appropriate, while maintaining a policy framework conducive to fiscal
sustainability.''
Finance Minister Shoichi Nakagawa and Economic and Fiscal Policy Minister Kaoru
Yosano also maintained that the government will never abandon its goal of
fiscal rehabilitation.
''We will continue to observe fiscal discipline but the conditions of the world
and Japanese economies have worsened significantly. We should heed such
circumstances,'' Nakagawa told reporters.
Yosano said Tokyo will stick to the reforms advocated by Koizumi but that the
Japanese economy ''has been hit by unexpected turbulence.''
The guidelines also watered down descriptions on Japan's target of achieving a
primary balance surplus in fiscal 2011, saying the government will ''make
efforts to realize'' it. Last year's written policy on budget formulation said
the government will ''never fail to'' do so.
A surplus in the primary balance is achieved when expenditures, excluding
debt-servicing costs, are covered by revenues without relying on debt issuance.
Yosano said, ''We need to keep hoisting the flag (of fiscal consolidation) even
though it is ragged and stained.''
Earlier in the day, Kosuke Hori, policy research council chairman of the ruling
Liberal Democratic Party, said at the policy panel meeting that Aso instructed
the party to draw up stimulus measures regardless of the spending cut policy.
Hori said Aso has called for creating ''a special category'' in the fiscal 2009
budget to spur the economy.
The premier later indicated that the government will consider earmarking such
expenses, telling reporters, ''We can study various options. We will consult
with ruling parties.''
A senior LDP official, who declined to be named, said the size of the special
category should be around 10 trillion yen and that such an allotment should be
made for three years, bringing the total scale of the arrangements to 30
trillion yen.
The LDP official added that the government should issue construction bonds to
finance the measure.
Separately, Aso is planning to newly distribute 1 trillion yen to
municipalities in local tax grants to revitalize ailing regional economies,
government sources said.
The money will be provided to local governments on top of 1 trillion yen in
state subsidies which will be used to finance road construction and other
public works projects, they said.
Unlike state subsidies allocated for specific projects, municipalities face no
restrictions in spending local tax grants.
Critics say such an expansionary fiscal policy could fuel concerns about the
nation's fiscal conditions, which remain the worst among advanced economies.
Japan's outstanding long-term debts at the national and local governments are
expected to reach 148 percent of its gross domestic product on March 31, 2009.
==Kyodo
2008-12-03 22:19:42