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Sunday, Dec. 25, 2005

Cabinet approves austere 2006 budget worth 79.7 trillion yen

Staff writer

The Cabinet formally approved on Saturday a 79.686 trillion yen general account budget for fiscal 2006 that would help slow down growth of the nation's debt.

Armed with a broad mandate with a landslide win in September's general election and an expected rise in tax revenue, the government was able to deliver on Prime Minister Junichiro Koizumi's promise to rein in debt for the first time in five years by reducing the budget by 3 percent from the initial fiscal 2005 budget.

But critics said the hard political work and additional burden to taxpayers remain ahead.

"It's a start," said Kazuo Mizuno, chief economist at Mitsubishi UFJ Securities Co. "Unfortunately, the real weight of the tax burdens to come will probably hit the Japanese people just at the downturn in the cyclical economic recovery."

Starting in January, taxpayers will see income taxes go up by roughly 10 percent when tax breaks in place since 1999 are halved. The government plans to completely remove the 20 percent tax break worth a maximum 250,000 yen in January 2007. Meanwhile, a residential-tax cut of 15 percent will also be rolled back in two stages starting in June.

In addition, the ruling coalition has agreed to raise tobacco taxes next July, increasing the cost of a pack of cigarettes by 20 yen. Liquor taxes on low-malt beer and wine will also go up.

"We need to re-examine our preconceptions of the elderly as weak members of society who need protection," said Finance Minister Sadakazu Tanigaki. "We need to ask people to bear a burden that reflects their ability to pay, so that we do not leave a heavy burden for our children to carry."

With these tax hikes along with hefty tax revenue from large corporations, the government expects revenue to rise to 45.878 trillion yen in fiscal 2006, up 4.3 percent from the current year.

Next year, Japan plans to issue 29.973 trillion yen new government bonds, which are essentially IOUs for new public debt. The figure is 12.8 percent less than that in the initial fiscal 2005 budget.

The new issues would fill the hole between revenue -- from taxes, stamps and other sources -- and policy-related general outlays. It would be the first time that figure falls under 30 trillion yen since fiscal 2001.

But even under the fiscal 2006 budget -- which is 2.5 trillion yen smaller than the initial budget for the current fiscal year -- the government would continue to depend on bond issues to cover 37.6 percent of spending next year. Interest payments on debt alone would cost 8.6 trillion yen, or roughly 23.7 billion yen a day.

While economists like Mizuno point to wasteful spending that needs to be tackled first, Tanigaki hesitated to name what should be cut next.

"I can't easily predict the kind of spending cuts we now see to continue in the future," the finance chief said. "If we plane the board down too much, we could cut away things that are important."

One priority is support for child-rearing as the population declines. The fiscal 2006 budget includes 18.7 billion yen more, for a total 298.3 billion yen, to day-care centers, 48 billion yen in subsidies to child-care programs and an allowance of 227.1 billion yen to parents with children.

Outstanding long-term debt by March 2007 would stand at 775 trillion yen for both national and local governments, or 150.8 percent of gross domestic product, according to the Finance Ministry. The national debt of an expected 542 trillion yen comes to an average burden of 4.2 million yen per citizen.

That burden is expected to get heavier as the population falls.

The budget will be submitted to the Diet when it convenes for an ordinary session in January.

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The Japan Times

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