In the face of a swelling fiscal deficit, the Cabinet on Friday endorsed basic policies for the fiscal 2004 budget, promising that the overall size of the budget and its core component -- general expenditure -- will not exceed those of fiscal 2003.
The overall budget for fiscal 2003 stood at 81.8 trillion yen, while general expenditure stood at 47.6 trillion yen.
The government will compile the fiscal 2004 budget later this month.
"To construct sustainable fiscal structure and maintain the country's economic power in the future, we are required to review the overall spending thoroughly and move the budget reform forward," Prime Minister Junichiro Koizumi said in a statement.
The government will limit growth in social security spending -- on pensions, medical care, care for the aged, and other welfare -- to 690 billion yen or less.
This expenditure is expected to rise every year in light of the aging population.
It will also cut subsidies to local governments by 1 trillion yen, as well as reduce tax allocation grants to those localities.
On the other hand, the government plans to allocate more funds toward education and technology, the revitalization of towns and local cities, as well as the environment.
Koizumi also instructed Finance Minister Sadakazu Tanigaki to keep the issuance of fresh government bonds in fiscal 2004 below the amount of tax revenue generated.
For fiscal 2003, the government has estimated that tax revenue will come to 41.79 trillion yen and that the issuance of fresh bonds will total 36.45 trillion yen.