Prime Minister Junichiro Koizumi's economic reform program is taking shape now that the government has set a spending framework for the fiscal 2002 budget. Policy-based general spending, not including debt servicing costs and revenue transfers to local governments, is pegged at 47.8 trillion yen, down 1.8 percent, or 860 billion yen, from fiscal 2001. This is the largest general-spending cut ever.
With bond issues for the next fiscal year limited to not more than 30 trillion yen -- a decision made earlier by the prime minister to cap the budget deficit -- the government must squeeze the spending budget by 3 trillion yen from what it is now. According to plans worked out by the Council on Fiscal and Economic Policy, however, spending in several priority areas, such as information technology, will be increased by 2 trillion yen.
The question from here on is how to deal with specific spending requests from government offices within the 47.8-trillion yen framework. On this question hinges the success or failure of Mr. Koizumi's reform program. Success requires a bold reordering of spending priorities -- drastically cutting nonessential spending and channeling the savings into growth sectors. What is needed, in other words, is a budget that puts money where it is really required.