Identifier
Created
Classification
Origin
08TOKYO2134
2008-08-05 00:13:00
CONFIDENTIAL
Embassy Tokyo
Cable title:  

JAPAN APPROVES RESTRICTIVE BUDGET REQUEST

Tags:  ECON EFIN JA PGOV PREL 
pdf how-to read a cable
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ZNY CCCCC ZZH
P 050013Z AUG 08
FM AMEMBASSY TOKYO
TO RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION PRIORITY
RUEHSS/OECD POSTS COLLECTIVE PRIORITY
RUEHFK/AMCONSUL FUKUOKA PRIORITY 9212
RUEHNH/AMCONSUL NAHA PRIORITY 1586
RUEHOK/AMCONSUL OSAKA KOBE PRIORITY 2950
RUEHKSO/AMCONSUL SAPPORO PRIORITY 9795
RUEAIIA/CIA WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 6324
RUEATRS/TREASURY DEPT WASHDC PRIORITY
C O N F I D E N T I A L SECTION 01 OF 02 TOKYO 002134 

SIPDIS

TREASURY FOR WINSHIP, DOHNER; USTR FOR WCUTLER AND MBEEMAN;
STATE FOR EAP/J, EEB

E.O. 12958: DECL: 07/30/2018
TAGS: ECON EFIN JA PGOV PREL
SUBJECT: JAPAN APPROVES RESTRICTIVE BUDGET REQUEST
GUIDELINES FOR FY 2009

TOKYO 00002134 001.2 OF 002


Classified By: J. Thomas Schieffer for reasons 1.4 b, d.

C O N F I D E N T I A L SECTION 01 OF 02 TOKYO 002134

SIPDIS

TREASURY FOR WINSHIP, DOHNER; USTR FOR WCUTLER AND MBEEMAN;
STATE FOR EAP/J, EEB

E.O. 12958: DECL: 07/30/2018
TAGS: ECON EFIN JA PGOV PREL
SUBJECT: JAPAN APPROVES RESTRICTIVE BUDGET REQUEST
GUIDELINES FOR FY 2009

TOKYO 00002134 001.2 OF 002


Classified By: J. Thomas Schieffer for reasons 1.4 b, d.


1. (C) Summary. Prior to reshuffling, the Fukuda Cabinet
completed the first major phase of the fiscal year 2009
budget process July 29 by setting restrictive guidelines for
budget requests from individual ministries and agencies.
Under the guidelines, ministerial budget spending is
estimated to total 47.8 trillion yen ($446.7 billion),up
about 1.2 percent compared to the current fiscal year 2008
budget. Social security spending accounts for all of the
increase. Ministerial budget spending has been essentially
unchanged, around 47 trillion yen ($439.2 billion) since
fiscal year 2002, while social security spending has
increased 4.3 trillion yen ($40.2 billion),or 25.1 percent,
due primarily to an aging population. The guidelines
demonstrate the Fukuda government,s commitment to the
medium-term fiscal consolidation goals Prime Minister Koizumi
set forth in 2006 and its intention to curb discretionary
spending even as the ruling party politicians want to find
ways to curry voter support as they look to a possible
near-term Lower House election and Japan,s economy softens.
End summary.

Six Categories for Budget Requests
--------------


2. (SBU) In setting the budget request guidelines, the
Ministry of Finance (MOF) divided ministerial budget spending
into six categories. (Note: Budget request guidelines govern
ministerial budget spending, the core component of the
central government,s general account budget, which accounts
for nearly 60 percent of total general account expenditures.
The guidelines do not cover two mandated spending items, debt
service costs and revenue sharing with local governments,
which account for the remaining 40 percent. Outlays under
these two items are initially estimated at the end of August
and finalized in December. The guidelines do not cover
outlays under the Fiscal Investment and Loan Program (FILP).
End note.) The following is a brief description of the

Cabinet-approved budget request guidelines for each category:


3. SBU) Social Security: spending requests will be allowed
to increase 650 billion yen ($6.1 billion),or three percent
from the present fiscal year 2008 budget, to 21.6 trillion
yen ($202 billion). This figure represents a 220 billion yen
($2.1 billion) reduction from the initial social security
spending estimates in line with the medium term fiscal
consolidation plan approved by the Koizumi Cabinet in 2006.
Outlays under this category, including pension and medical
care expenditures, account for 45.2 percent of total
ministerial requests. At present, the fiscal year 2009
budget guidelines do not include the GOJ-agreed upon increase
in the share of the central government,s funding of the
basic national pension scheme from the current one-third to
the one-half scheduled for fiscal year 2009. The cost of the
increased government pension contributions is estimated to be
2.3 trillion yen ($21.5 billion); the issue is to be decided
by late December 2008, before the Cabinet approves its 2009
fiscal year budget proposals. Many observers had expected
the GOJ to fund this increase in contributions with a
consumption tax hike.


4. (SBU) Public Works: spending requests under the general
budget account will be reduced 300 billion yen ($2.8
billion),or five percent, from the 2008 fiscal year level to
6.4 trillion yen ($59.8 billion). The medium term plan
requires an annual three percent cut in public works spending
and the Fukuda Cabinet is calling for an additional two
percentage point cut in spending to offset the spending in
priority areas (see description below). As anticipated, the
guidelines did not set a specific amount for road improvement
spending requests. Outlays under this category account for
13.4 percent of total ministerial budget requests.


5. (SBU) Discretionary Non-Investment: spending requests
will be cut approximately 300 billion yen ($2.8 billion),or
five percent, from fiscal year 2008 levels, to 7.1 trillion
yen ($66.4 billion),again two percentage points more than
the previous year to accommodate spending for priority areas.
Under this category, spending requests are either 1) reduced

TOKYO 00002134 002.2 OF 002


two percent from the fiscal year 2008 budget; 2) reduced
three percent, or; 3) reduced five percent. For example,
science and technology spending requests would be cut two
percent from 2008 fiscal budget levels, while spending on
most categories of national defense and official development
assistance (ODA) will be reduced three and five percent,
respectively. (Note: Spending for the realignment of U.S.
forces in Japan is not subject to the three percent cut in
defense budget requests, and is to be decided by late
December in the budget compilation process. Host Nation
Support provided under the 2008 Special Measures Agreement
(SMA) is, however, subject to the spending cap. Since
spending levels are already established under the bilateral
SMA at the amount as last year, the Defense Ministry will be
required to seek additional cuts elsewhere in the Defense
Budget. Including realignment spending, the defense budget
will be cut by one percent. End note.) Like public works
spending requests, the cuts in discretionary non-investment
budget requests are two percentage points greater than in JPY
2007 to free up funds for priority areas. Outlays under this
discretionary non-investment category account for 14.8
percent of total ministerial budget requests.


6. (SBU) Priority Policy Areas: individual ministries and
agencies are allowed to make additional spending requests of
up to a combined 330 billion yen ($3.1 billion) on the
following Cabinet-designated priorities: 1) boosting economic
growth potential; 2) revitalizing local regions; 3) building
a low-carbon society; 4) securing social security programs;
and 5) improving quality of people,s livelihoods (including
measures to raise the food self-sufficiency ratio). Outlays
under this category account for 0.7 percent of total
ministerial budget requests.


7. (SBU) Obligatory Non-Social Security/Non-Investment:
spending requests, including subsidies to local governments,
will increase 200 billion yen ($1.8 billion),or nearly three
percent, to 7.8 trillion yen ($72.9 billion). This small
rise reflects projected spending associated with the upcoming
Lower House election. Excluding this factor, this category
will be almost unchanged from fiscal year 2008 levels.
Outlays will account for 16.3 percent of total ministerial
budget requests.


8. (SBU) Government Employee Wages: spending requests will
increase 100 billion yen ($934.6 million),or two percent, to
4.6 trillion yen ($42.9 billion). Outlays under this
category account for the remaining 9.6 percent.

Next Steps
--------------

9. (U) Individual ministries and agencies are now required
to develop detailed budget requests for submission to MOF by
the end of August. Inter-ministerial and political
negotiations then follow. The Cabinet will approve a
consolidated budget in late December before sending it to the
Diet in January 2009.
SCHIEFFER