UPDATE 4-Japan DPJ wants Y2 trln in 11/12 budget for economy

* Ruling party wants $2 trln to go to growth, jobs

* Backs govt plan to cap spending, debt issuance next FY
(Adds economist’s comments)

By Yoko Nishikawa

TOKYO, July 22 (BestGrowthStock) – Japan’s ruling party urged the
government on Thursday to earmark 2 trillion yen ($23 billion)
in next year’s budget to generate growth, but stressed the need
to cap spending and new bond issuance.

Prime Minister Naoto Kan’s government, fresh from an
election setback, is struggling to balance the need to curb
soaring public debt with achieving sustainable growth.

The ruling coalition also needs to find new allies to enact
bills, including legislation to implement the budget, after
losing its majority in the upper house this month.

Democratic Party policy chief Koichiro Gemba told reporters
that the 2 trillion yen, which would be found mostly by cutting
waste, should be spent on creating jobs, boosting growth,
pulling Japan out of deflation and fulfilling campaign promises.

The party’s proposals were submitted to Prime Minister Naoto
Kan and will be taken into consideration as the government works
on details of its budget guidelines to be released next Tuesday.
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Graphic on Japan’s public debt: http://r.reuters.com/sez92m
Q+A-Can Japan keep spending, JGB cap pledges [ID:nTOE66C042]
More stories on Japanese politics: [ID:nPOLJP]
More stories on the Japanese economy [ID:nECONJP]
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The government pledged this week to cap spending and new
bond issuance at this year’s levels in next year’s budget — a
plan the party backed in its own proposals. [ID:nTOE66J03T]

The government said spending excluding debt servicing costs
will be capped around 71 trillion yen in the fiscal year from
next April, about the same as the amount earmarked for this
year.

“The 71 trillion yen was at a record level, so in a way we
will still be compiling a budget that is meant to strengthen
economic growth,” Gemba said.

“But at the same time, capping the spending at 71 trillion
yen is a way to maintain fiscal prudence in line with our fiscal
reform programmes.”

The 2 trillion yen, a proposal that Deputy Finance Minister
Motohisa Ikeda said would likely be accepted by the government,
would be part of the 71 trillion yen.

How to allocate the 2 trillion yen should be decided by the
prime minister after an open competition between ministries, the
party said.

Meeting the government’s targets could be tough given rising
social welfare costs for a rapidly ageing society and Kan’s
weakened political leadership after the election setback.

Takeshi Minami, chief economist at Norinchukin Research
Institute, said it would be difficult to find enough funds to
finance the budget unless drastic cuts were made to civil
service personnel costs or social welfare spending.

“There aren’t that many options left to find funds.”

Support for Kan’s government slid after he floated a
possible doubling of the 5 percent sales tax to curb public
debt, already nearly twice the size of Japan’s $5 trillion
economy, and failed to provide a convincing plan for fixing its
deep economic ills.

The party also called on the government to prioritise
spending on fulfilling campaign pledges. But it said the
measures should be financed by such steps as eliminating waste,
cutting civil servant personnel costs and overhauling the
budget.

Investment Basics
($1=86.93 Yen)
(Editing by Charlotte Cooper and Michael Watson)

UPDATE 4-Japan DPJ wants Y2 trln in 11/12 budget for economy