Japan sets new fiscal plans, social security cuts put on ice+

TOKYO, June 23 Kyodo -
The government adopted a set of policy guidelines Tuesday to help restore
Japan's economic strength and fiscal discipline, at a time when Prime Minister
Taro Aso is facing a tough road ahead in preparations to win a forthcoming
general election.

Despite Japan's worsening fiscal health, the annual guidelines shelved the
multi-year plans to curb government expenditures on social security and
welfare, and gave up on the previous goal of achieving a surplus in the primary
balance by March 2012.
The latest guidelines are widely seen as a setback for Japan's attempt to cut
back on spending and a deviation from the budget reform drive of former Prime
Minister Junichiro Koizumi, who mapped out the targets in fiscal 2006.
Until the last minute, many lawmakers in Aso's Liberal Democratic Party, which
is expected to face an uphill battle against in the election, resisted
maintaining the target of curbing natural increases in social security costs by
220 billion yen a year.
In the end, the draft of the guidelines was revised to guarantee that the
government would not curb social security costs in forming its fiscal 2010
state budget.
Aso told reporters that securing stable living conditions for the public is
crucial but acknowledged the importance of improving the country's fiscal
situation over the medium term.
Under the Koizumi initiative, the government pledged to limit growth in social
security spending by 1.1 trillion yen between fiscal 2007 and fiscal 2011.
Struggling with a sharp fall in tax revenues, the government set new targets to
reduce Japan's ballooning public debt, made even worse by massive stimulus
measures implemented to deal with the global economic downturn.
Japan's long-term public debt, the largest of any developed country, is
projected to reach 168 percent of gross domestic product at the end of next
March, according to the Finance Ministry.
The guidelines, compiled for the first time under the Aso administration, said
Japan's primary fiscal goal will be to stop the ratio of its outstanding public
debt to GDP from expanding by around 2015 and to reduce it in a stable manner
from the early 2020s.
The government also said it will try to achieve a surplus in the primary
balance -- revenue matching spending, excluding debt payments -- at the
national and local levels within the next 10 years.
The guidelines, dubbed a ''big-boned policy for fiscal 2009,'' will serve as
the basis for formulating the national budget for the year starting April 1,
2010.
Following the endorsement of the guidelines, Aso instructed Finance Minister
Kaoru Yosano to draw up a budget request ceiling for fiscal 2010 by the end of
next week.
Yosano said at a news conference that the government remains committed to
cutting expenditures other than those related to social security, such as for
public works.
It is expected that government expenditures on social security will increase by
more than 1 trillion yen in next fiscal year's budget as a result of Japan's
declining birthrate and the aging of the population.
When preparing the next budget, the government has said it would implement big
spending on measures to improve labor market conditions, increase the number of
doctors and help families raise children.
The guidelines also included plans to expand Japan's economic growth, such as
by improving eco-friendly technologies and deepening ties with other Asian
countries.
The government has released economic and fiscal policy guidelines every year
around this season to prepare for the coming fiscal year's budget-making
process.
But this time it is uncertain whether the direction laid out will remain intact
as Japan's main opposition, the Democratic Party of Japan, is seen to have a
good shot at wresting power from the LDP in the election that must be called by
October.
Media polls have shown that public approval rates for the LDP, which has
governed Japan for more than half a century in almost unbroken succession, have
been falling sharply in recent weeks.
Earlier this month, a poll by Kyodo News showed support for the Aso
administration had dropped to 17.5 percent, down 8.7 points from May.
''I wonder whether this is really a big-boned policy,'' DPJ leader Yukio
Hatoyama said Tuesday at the party's headquarters, when asked by reporters
about his impression of the latest guidelines.
''I suppose everyone in this country has become dubious'' about the guidelines'
real intentions, Hatoyama said.
==Kyodo