Japan adopts budget cut for next year


Japan's economy may need support from government spending, some economists say, but the budget calls for a 1.7% cut

By staff and wire reports

TOKYO, Japan -- Prime Minister Junichiro Koizumi's cabinet on Monday adopted a budget for the business fiscal year that cuts spending 1.7 percent.

The draft calls for a total government outlay of 81.23 trillion yen ($627 billion) for the fiscal year, which starts next April 1 and runs through to the end of March 2003.

That would be the second straight year that Japan cuts its budget.

Koizumi has pledged to cut spending. Japan's debt level stands at 140 percent of its national output -- the highest level of any industrialized country.

Koizumi has vowed to take on painful reforms aimed at changing the structure of Japan's economy, instead of trying to spend his way out of trouble like past administrations.

Koizumi: 'A bold step forward'

This budget cuts discretionary spending even more sharply, down 2.3 percent.

That "general expenditures" part of the budget is the portion the government has the most control over. It is also the part that is most often criticized for pork barrel projects.

As part of those cuts, the budget slashes public-works spending by 10.7 percent.

The government is calling it a "reform-implementation budget."

"We took a bold step forward to implement a budget for reform," Koizumi told reporters after the cabinet approved it. The finance ministry first released it last Thursday.

General expenditures in this budget, at 47.55 trillion yen ($367 billion), are at their lowest since fiscal 1998, under reformist Ryutaro Hashimoto's failed "austerity program."

Some experts question Koizumi's timing. Japan is also suffering a pronounced recession, and unemployment and bankruptcies are soaring.

Richard Jerram, Japan economist at ING Barings, expects this to be Japan's worst recession on record, outdoing the 1998 slump.

Keeps within 30 trillion yen cap

Few economists expect a recovery anytime before the fourth quarter of 2002.

Interest rates are already close to zero, hampering the central Bank of Japan's efforts to combat the slump. So some economists say the country may need more, not less, government support.

Still, Koizumi has pledged to trim government debt. The budget draft keeps issuance of new government bonds within his 30 trillion yen cap, one of his most publicized reforms.

Economist Ryo Hino at J.P. Morgan calls that cap artificial, because the government has used other funding methods to work around it.

The government will submit the draft for fiscal 2002 to Japan's parliament when it reconvenes in January.