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Thursday, Dec. 21, 2006

Tax yield lifts '07 budget

Welfare outlays to get boost, bond issues to fall


Staff writer

The Finance Ministry on Wednesday handed the Cabinet the fiscal 2007 draft budget, which, due to projected increased tax revenues, reflects the first spending rise in two years but also slashes the issuance of new government bonds.

The 82.9 trillion yen budget, the first one compiled since Prime Minister Shinzo Abe took office in September, reflects both a 4.0 percent increase from the initial 79.68 trillion yen budget for fiscal 2006 and growing social security costs.

Abe's Cabinet was able to cut new bond issuances -- a major feature of the fiscal 2007 budget -- by a record 4.5 trillion yen from the current year to 25.4 trillion yen thanks largely to the brisk economy, for which tax revenue is forecast to rise by 16.5 percent to 53.5 trillion yen.

The ratio of new government bond issuances to expenditures will decline to 30.7 percent from 37.6 percent in fiscal 2006, although the figures show the government still relies heavily on public debts to pay its expenses.

"There was concern that momentum for reform will slow under the Abe Cabinet, but the draft budget showed the fiscal reform drive will carry on," Finance Minister Koji Omi told reporters.

Omi also said the growing tax revenue will enable the government to move up its goal of bringing the country's primary balance out of the red. Currently, the government plans to report a surplus in the balance -- meaning greater tax revenue and nontax revenue than expenditures minus debt-servicing costs -- in 2011.

Under the draft budget, the balance of government debt at the national and local levels would stand at around 773 trillion yen, or 148.1 percent of gross domestic product, at the end of fiscal 2007, compared with the projected 767 trillion yen, or 150.2 percent of GDP, at the end of this fiscal year to March 31.

The ratio, however, will still be the worst in the developed world.

With the estimated tax revenue rise, the deficit in the primary balance in fiscal 2007 is forecast at 4.4 trillion yen, compared with 11.2 trillion yen in the current fiscal year.

Omi indicated that to accelerate fiscal rehabilitation, discussion must start by late next year on revenue reforms, including a consumption tax hike. The ruling bloc has shelved talk of a sales tax rise until after next summer's Upper House election to avoid a voter backlash.

Following further talks between the Finance Ministry and other ministries for adjustments, the draft budget is expected to be formally endorsed by the Cabinet on Sunday and submitted to the regular Diet session that convenes in January.

The draft represents a mixture of Abe's effort to maintain the fiscal reform drive of his predecessor, Junichiro Koizumi, and to add a touch of his own agenda.

The government increased spending on pursuits Abe has prioritized since he ran for president of the ruling Liberal Democratic Party, including education reform and giving a second career chance to those who have lost jobs or suffered bankruptcies.

Responding to growing concerns that Japanese children's academic level is declining, the budget allocates 6.6 billion yen to conduct an annual nationwide achievement test for sixth graders and third-year junior high school students.

To combat bullying at schools -- which was blamed for several suicides this year -- the government plans to earmark 6.2 billion yen, up 28.2 percent from the current fiscal year, to deploy school counselors and expand hotlines for kids being victimized.

Abe's second-chance program features 1.8 billion yen to offer training sessions for younger generation job-seekers. It also earmarks 800 million yen for a program to give advice to owners of small firms seeking to rebuild their business.

Social welfare spending, including pension and health insurance programs, will increase 2.7 percent to 21.1 trillion yen to help cope with the rapidly aging society and the nation's depopulation.

Official development assistance outlays are to be cut 4.0 percent year-on-year to 729.3 billion yen. The ODA budget has steadily declined since 1998.

But to avoid criticism that Japan is cutting back on aid to the international community, the government said it increased ODA for African countries and peacekeeping efforts, while slashing salaries for Japanese experts dispatched abroad and other managerial costs.

Defense spending was trimmed 0.3 percent to 4.8 trillion yen, despite an increase in the costs for deploying a ballistic missile defense system.

Public works expenditures were reduced to 6.9 trillion yen, down 3.5 percent from the current fiscal year. The public works budget has been on a steady decrease since fiscal 2002.

The outlays feature programs aimed at revitalizing regional economies, including 30.6 billion yen for improvement of road access to key facilities like airports and ports, in an apparent response to criticism that rural areas were left out in the reform initiatives pursued by Koizumi.



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