Japan approves budget guidelines

Koizumi's cabinet approved his calls to radicalize Japan's spending

By CNN's Alex Frew McMillan in Hong Kong
and wire reports

TOKYO, Japan -- The reforms of Japanese Prime Minister Junichiro Koizumi got a double boost Friday after his cabinet approved his guidelines for his first budget.

The wild-haired leader got another lift earlier in the day when he was re-elected president of the ruling Liberal Democratic Party.

He ran unopposed, all rivals deterred by his high level of public support.

Koizumi is now prepping the spending plan for the next fiscal year for Japan. One of his staple promises as he tries to work Japan out of a decade-long slump is to cut government spending.

His cabinet OK'd his plan to trim government spending for fiscal 2002, which will start next April and run through March 2003.

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The government said it plans to cut general spending, on items like social security and defense, by 1 trillion yen to $391.3 billion (47.8 trillion yen).

That would be the first drop in four years and a big move toward Koizumi's goal to cut the whole budget by 3 trillion yen.

The hardest hit area would be public works spending, frequent targeted by critics as inefficient, pork-barrel projects. That would be trimmed around 10 percent.

Koizumi wants to get the total amount of government bonds below 30 trillion yen.

Also today, his government put out a report suggesting numerous ways of changing the way Japan's 77 state-run corporations work.

Radical change

Friday's budget salvo is really a wish list, with Japan's parliament needing to approve any cuts.

Haggling is expected to continue through to December, when the budget gets approved.

Koizumi has promised radical change to help Japan. The divorced leader is now trying to get his reform program in gear.

But he faces opposition even from the conservative elements of his own party. Shifting and cutting spending would hurt their support.

Economists also say Koizumi may struggle to cut government spending at the same time Japan is fighting a likely recession.

Despite an official back-and-forth between ministers, some of whom favor Koizumi's reforms much more than others, experts say Japan will get a supplementary budget later this year.

That is typical in Japan, and conflicts with the leaders pledges. But it may be smaller than normal under Koizumi.

Officials have admitted Japan has slumped into a second consecutive down quarter, the official definition of a recession.

It is expected to be confirmed when the next set of gross domestic product figures come out in September.

Reuters contributed to this report.