The government will cut new bond sales by the largest margin on record, curb spending across the board and take a sharp bite out of the deficit under the fiscal 2007 draft budget submitted Wednesday.

Such belt-tightening may appear "beautiful," but the draft budget relies on growing tax revenues generated by economic expansion and falls short of addressing how to pay for the enormous needs of the rapidly aging population, experts say.

Under the slogan of creating a "beautiful country," Prime Minister Shinzo Abe has called for cutting new bond issuances to improve fiscal health, along with other agenda pursuits, including revising the Constitution.

Yasunari Ueno, chief market economist at Mizuho Securities Co., acknowledged the draft budget demonstrates Abe's commitment to mending the country's debt-ridden fiscal status by reducing the size of new bond sales.

However, Ueno also said: "The financial consolidation's 'beauty' reflected in the proposal is largely dependent on rising tax revenues thanks to economic expansion. We don't know if the economic expansion will continue."

Ueno pointed out that recent troubling economic data in the area of household and corporate capital spending have thrown cold water on the future outlook.

On Dec. 8, the government revised downward the third-quarter gross domestic product figure to an annualized 0.8 percent from the initially projected 2.0 percent. It took this step because of sluggish consumer spending and corporate capital spending. Then on Tuesday the government reduced the fiscal 2006 economic growth forecast to 1.9 percent from the initially projected 2.1 percent.

While the draft budget cuts spending in such areas as public works, aid for developing countries and defense, general spending would increase 1.3 percent to 46.98 trillion yen, rising for the first time in three years.

The rise in the overall budget reflects increased spending on welfare and medical care -- up 2.7 percent to 21.1 trillion yen -- thanks to the aging population and declining birthrate. Spending in this area accounts for a quarter of all expenditures.

Naoko Nemoto, a managing director of Standard & Poor's Tokyo branch, argued that the government needs to cut spending more, especially for public works projects, and increase the consumption tax to boost revenue.

"Debate on the consumption tax hike should be held as soon as possible," she said.

However, raising taxes is taboo in an election year.

With the Upper House election coming up this summer, the government has called off discussions on raising the consumption tax until after autumn.

At a news conference Wednesday, Finance Minister Koji Omi admitted that merely cutting spending is not enough to correct the fiscal deficit, saying "drastic revenue reform" is necessary.

Omi did not rule out raising the consumption tax in the future, but he made clear that discussion won't come until next fall.

Meanwhile, the draft budget projects tax revenue stemming from the economic expansion to increase 16.5 percent to 53.5 trillion yen, allowing the government to cut new debt sales by 4.5 trillion yen -- the largest amount ever -- to 25.4 trillion yen.

The budget deficit will be pared to 4.4 trillion yen in fiscal 2007 from 11.2 trillion yen this year.

"The government's goal of balancing the budget in fiscal 2011 will likely be accomplished a year or two earlier," said Hideo Kumano, chief economist at Dai-ichi Life Research Institute, citing the improved financial situation as long as the economy continues to expand.

Omi also said it may be possible to eliminate the deficit earlier than the targeted year, although he did not say when that might happen.

Despite such a rosy outlook, the ratio of public debt to gross domestic product will still stand at a hefty 148.1 percent at the end of March 2008, assuming the economy expands 2 percent next fiscal year, according to the Finance Ministry. This is by far the highest among developed countries: The figure is 62 percent for the U.S. and 49 percent for Britain.

"I cannot be optimistic (about the fiscal health of Japan) given the massive ratio of debts to GDP," S&P's Nemoto said. "Huge debts mean that Japan will pass them onto future generations."