Japan’s finance minister said yesterday he had called on government ministries to cut their spending plans for the next fiscal year as the ruling party looked to deliver on 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.
National Strategy Minister Naoto Kan reiterated yesterday that the government was considering whether to compile a second extra budget for the current fiscal year 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 programs, expanding a public debt burden that is already the biggest among developed economies.
“I’ve issued my instructions and other Cabinet members have agreed,” Finance Minister Hirohisa Fujii told reporters after a Cabinet meeting. “I recognize 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 tomorrow for next year’s budget. The Democrats have scrapped a record ¥52.7 trillion (US$587.5 billion) spending ceiling set by the outgoing government for the 2010-2011 budget.
The spending ceiling for 2009-2010 was ¥47.8 trillion.
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.
Japanese 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 Sunday that the government will have to sell bonds in the next fiscal year because of lower corporate tax revenue.
Investors are already bracing for as much as ¥10 trillion in extra bond supply simply to make up for this year’s tax revenue shortfall.
The 2009-2010 bond program is already a record at ¥44.1 trillion.
The Democrats want to draw up measures to support the labor market as high unemployment and falling wages have become more of a threat to Japan’s recovery from its worst recession since World War II.
“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.”
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