Japan`s FY 2010 spending to be capped at record 52.7 tril. yen

TOKYO, June 30 Kyodo -
The government and the ruling bloc agreed Tuesday to place a cap on general
expenditures in the state budget for fiscal 2010 at 52.67 trillion yen, an
all-time high, Finance Minister Kaoru Yosano said.
The cap on outlays to implement policy measures for the year starting next
April will increase about 5 trillion yen from the previous ceiling, or 940
billion yen from general expenditures in this fiscal year's initial budget, due
primarily to rising social security payments.
On Wednesday, the Cabinet is scheduled to endorse the spending cap, which will
serve as the basis for budgetary requests from ministries and agencies.
For fiscal 2010, beleaguered Prime Minister Taro Aso's administration has
decided not to cling to the key multiyear target of curbing natural increases
in expenditures for social security by 220 billion yen annually, despite
Japan's deteriorating fiscal position.
Social security outlays will increase to about 25 trillion yen as a result of
completely taking in the natural growth of such costs, 1.09 trillion yen, on
the back of rapidly aging society.
Spending on social security and welfare programs will make up about 50 percent
of the total policy-related outlays.
Yosano indicated Japan could use taxpayers' money more effectively in the
medical services sector, saying the government would still be able to save more
than 100 billion in social security costs.
Under the budgetary guidelines, the government will set up 350 billion yen in
special reserves in the budget to fund top priority measures aimed at easing
the impact of the economic downturn and shoring up the faltering economy,
Yosano said at a news conference.
The special budget will mainly be used for measures to improve the job
environment, medical and nursery services, according to the Finance Ministry.
Except for bigger outlays for social security and welfare programs, Yosano
claimed that the government is sticking to the ongoing efforts to cut spending,
such as in the areas of public construction and national defense.
In principle, public works spending will be cut 3 percent from the current
fiscal year. Outlays for defense and universities will both be reduced 1
percent.
At a meeting of the government and the ruling bloc, Aso said, ''Aiming for a
good balance between (social) security and vitality (in the economy)'' is a
grand design of the next fiscal year's budget, according to a top Finance
Ministry official.
The government will continue to keep a reserve fund for emergency economic
situations, created in fiscal 2009.
The size of the fund will be 650 billion yen, down from 1 trillion yen in
fiscal 2009, as 350 billion yen from it will be allocated to the top-priority
budget.
At the press conference, Yosano also warned against Japan's continued heavy
reliance on issuing bonds to cover its big spending, amid a shortfall in tax
revenues.
''My biggest concern is the trend of long-term interest rates,'' Yosano said,
noting that it would be too ''optimistic'' to assume the current low rates
would ''continue forever.''
There is little hope to see a strong pickup in tax revenues as many companies
are still struggling to cope with the fallout from the global financial crisis
last year. Tax revenues dropped to the 44 trillion yen level in fiscal 2008.
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.
Japan's outstanding public debt is already around 170 percent of its gross
domestic product -- the worst among any developed country.
A rise in long-term interests would not only undermine the fragile economic
recovery but would also inflate the public debt.
==Kyodo