JAPAN'S CABINET APPROVES FY2008 SUPPLEMENTAL BUDGET

UNCLAS TOKYO 002732 SIPDIS TREASURY FOR IA DOHNER, WINSHIP, AND FOSTER E.O. 12958: N/A TAGS: ECON JA EFIN ECON SUBJECT: JAPAN'S CABINET APPROVES FY2008 SUPPLEMENTAL BUDGET REF: TOKYO 02393 ¶1. (SBU) Summary: Just one month after the Government of Japan,s August 29 announcement of an economic policy package (reftel),the Cabinet Office approved September 29 the first supplemental budget for FY2008 to fund a portion of the spending promised under the package, and submitted it immediately to the Diet. The supplemental budget includes a net 1.1 trillion ($10.5 billion) in general account spending and another 0.2 trillion in Fiscal Investment and Loan Program (FILP, often referred to as the "second budget") outlays. Excluding expenditures unrelated to headline figures of the 11.7 trillion ($111.5 billion) economic package, the first supplemental budget funds about 1.8 trillion ($17 billion) in central government expenditures, and 0.2 trillion ($1.9 billion) in FILP outlays. The combined 2 trillion ($19 billion) in funding represents 17% of the total amount committed under the August 29 package. The remaining 83% portion of the package consists largely of local government spending and an expansion of government loan guarantee programs. In addition, the Cabinet will compile a second FY2008 supplemental budget in December to finance individual income tax cuts also promised in the economic package. End Summary. ¶2. (SBU) It is uncertain at this stage whether and when the Diet will approve the proposed first supplemental budget. If an election does not interrupt the current session, the Diet is expected to approve it in early December. However, if opposition parties that have the majority in the Upper House decide to block its passage, Diet approval will be delayed (Japan,s constitution stipulates that, at the latest, a budget bill will become law 30 days after Lower House approval, regardless of consent from the Upper House). Furthermore, the possibility looms that Prime Minister Aso may dissolve the Lower House for a general election prior to Diet deliberations on the supplemental budget. General Account Overview -------------- ¶3. (SBU) The proposed first FY2008 supplemental budget will increase total general account budget expenditures by a net 1.1 trillion ($10.5 billion) above the already authorized 83.1 trillion ($791 billion) in the initial FY2008 budget. This net increase represents about 1.3% of the regular budget, or 0.2% of GDP. The supplemental budget will fund 2.1 trillion ($20 billion) in new expenditures, consisting of 1.8 trillion ($17 billion) of spending promised under the economic stimulus package, and another 0.3 trillion ($2.9 billion) transfer to a sinking fund. In addition, the supplemental budget will reduce outlays previously authorized under the initial budget by 1.1 trillion ($10 billion). Financing for this new spending will be provided by FY2007 unused funds and additional government borrowing. The Ministry of Finance (MOF) will issue nearly 0.4 trillion ($3.8 billion) in additional Japanese government bonds (JGB) representing the first JGB issuance to finance the supplemental budget since FY2002. FILP Account -------------- ¶4. (SBU) The Cabinet also approved a first supplemental FILP budget for FY2008, which will provide roughly 0.2 trillion ($1.9 billion) in new outlays. This increase represents about 1.3% of the initial FILP outlays (13.9 trillion/$132 billion),or 0.03% of GDP. Three government affiliated financial institutions such as the National Life Finance Corporation, will receive 0.2 trillion ($1.9 billion) from the FILP. There was no additional FILP allocation for public works-implementing institutions. Financing for the FILP supplemental is provided entirely by the issuance of FILP bonds. SCHIEFFER