Japan's FY 2010 general spending to hit record at above 52 tril. yen+

TOKYO, June 25 Kyodo -
The Japanese government's general expenditures in the state budget for fiscal
2010 will likely soar to a record level at above 52 trillion yen, spurred by
rising social security costs, government sources said Thursday.

The government's plan signals a significant departure from its efforts to
maintain the path of fiscal restraint, with the beleaguered Prime Minister Taro
Aso's administration taking into account a forthcoming general election.
Earlier this week, Aso's Cabinet adopted its annual policy guidelines to renew
its pledge to fix Japan's disastrous fiscal position, but shelved ongoing
efforts to cut social security costs partly out of fear that his ruling Liberal
Democratic Party could lose a large number of votes in the election.
As a result, spending on social security and welfare programs will likely
increase to about 26 trillion yen in the year starting next April, accounting
for about half the total general expenditures, the sources said.
The Finance Ministry is trying to set a spending cap on policy-related outlays
in the 52 trillion yen range, with a plan to keep reducing costs in other key
areas such as public works and national defense, the sources said.
The government plans to continue to cut spending on public construction
projects by 3 percent from the previous year, the sources said. But it is
likely that special reserves of sorts will be created to cope with calls for
more money for public works from ruling party lawmakers.
As for spending related to national defense, the government is expected to cut
at least about 1 percent from the previous year, the sources said.
The guidelines for fiscal 2010, to be used when the government receives
budgetary requests from ministries and agencies, compares with general
expenditures of 51.73 trillion yen in this fiscal year's initial budget that
topped 50 trillion yen for the first time.
The Cabinet's approval of the latest request guidelines is scheduled for as
early as the middle of next week.
To finance the upcoming budget, it is seen as inevitable that the government
will issue a huge amount of deficit-covering bonds, amid a shortfall in tax
revenues.
At the end of fiscal 2009, the accumulative long-term debt of the Japanese
central and local governments is projected to reach 816 trillion yen.
It has become a real possibility that the ballooning debt would lead to a rise
in long-term interest rates and undermine the fragile economic recovery.
On Tuesday, the Cabinet endorsed a set of policy guidelines for economic and
fiscal management, setting aside the previous target of curbing natural
increases in social security costs by 220 billion yen annually in formulating
the next fiscal year's budget.
The suspension of the practice was widely seen as a setback for Japan's bid to
cut back on spending and a deviation from the fiscal reform drive of former
Prime Minister Junichiro Koizumi, who created the target in fiscal 2006.
In the face of the recession, Aso has said the government's top priority would
be to revitalize regional economic conditions and improve social security
services, including those related to employment and child raising.
As Japanese society is rapidly aging, the natural growth of government spending
on social security has been estimated to surpass 1 trillion yen in fiscal 2010.
==Kyodo