July 23, 2014 / 10:23 AM / in 4 years

Japan to cut discretionary spending 10 percent in next FY budget: draft

TOKYO (Reuters) - Japan will cut discretionary spending such as public works by 10 percent in next fiscal year’s budget, a draft document showed, as Prime Minister Shinzo Abe’s government seeks to cut the government’s enormous deficit even as it promotes growth.

The savings of just under 4 trillion yen ($39 billion), detailed in the document seen by Reuters on Wednesday, are equivalent to the amount that the government wants to add for Abe’s “growth strategy”, economic reforms intended to raise Japan’s long-term potential growth rate.

The document, a draft of the Finance Ministry’s guidelines for budget requests for the fiscal year starting next April, is expected to be approved by Abe’s cabinet on Friday, said a person familiar with the process.

The budget will also limit the increase in social welfare spending, the biggest budget item, to 830 billion yen, below this fiscal year’s 1.3 trillion yen increase.

Abe is trying to both stimulate the long-sluggish economy and to begin curbing public borrowing that - at more than twice Japan’s gross domestic product - is the biggest debt burden in the industrial world.

A draft document seen by Reuters on Tuesday highlights the difficulty of that task.

It showed that the government is set to miss a 2021 budget-balancing goal by more than $100 billion even with a planned tax increase, a draft government estimate showed, raising the political pressure for more tax hikes or spending cuts.

Finance Minister Taro Aso has said he wants to keep new bond issuance for next fiscal year below the 41.3 trillion yen in the current fiscal year’s budget, which is a positive sign for fiscal discipline.

Japan has the world’s fastest-ageing society, which constantly pushes up welfare spending and places a constantly growing burden on public finances.

($1 = 101.3600 Japanese Yen)

Writing by Stanley White; Editing by William Mallard, Edmund Klamann and Richard Borsuk

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