The government plans to set the budget for the next fiscal year at around 80 trillion yen, down from 82.1 trillion yen this year for the first contraction in four years, Finance Ministry officials said Sunday.

The envisaged decrease in spending would be achieved through a 1.5 trillion yen reduction in tax grants to local governments to 14.6 trillion yen, and a 1 trillion yen cut to the 46 trillion yen level in policy-related general expenditures, the officials said.

The government plans to set debt-servicing costs at the upper half of the 18 trillion yen level, up slightly from 18.4 trillion yen for fiscal 2005, they said.

Spending cuts -- which would send the nation's general account to the lowest level in eight years -- and a projected growth in tax revenues would allow the government to limit the issuance of debts to the 29 trillion yen level, they said.

The tally is down from the 34.4 trillion yen for fiscal 2005, marking the second straight year of decline and representing a step to restore Japan's debt-ridden finances, the worst among major industrialized nations.

It would also meet Prime Minister Junichiro Koizumi's fiscal policy target of limiting the issuance of fresh government bonds, excluding refunding bonds, to 30 trillion yen a year.

The Finance Ministry is putting the final touches on a draft budget for fiscal 2006 to be unveiled Tuesday.