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Cablegate: Japan's Cabinet Approves Fy2008 Supplemental Budget

VZCZCXRO5574
PP RUEHRN
DE RUEHKO #2732 2742256
ZNR UUUUU ZZH
P 302256Z SEP 08
FM AMEMBASSY TOKYO
TO RUEHSS/OECD POSTS COLLECTIVE PRIORITY
RUEHFK/AMCONSUL FUKUOKA PRIORITY 0139
RUEHNAG/AMCONSUL NAGOYA PRIORITY 8225
RUEHNH/AMCONSUL NAHA PRIORITY 2496
RUEHOK/AMCONSUL OSAKA KOBE PRIORITY 3881
RUEHKSO/AMCONSUL SAPPORO PRIORITY 0714
RUEATRS/TREASURY DEPT WASHDC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 7618

UNCLAS TOKYO 002732

SIPDIS

TREASURY FOR IA DOHNER, WINSHIP, AND FOSTER

E.O. 12958: N/A
TAGS: ECON JA EFIN ECON
SUBJECT: JAPAN'S CABINET APPROVES FY2008 SUPPLEMENTAL BUDGET

REF: TOKYO 02393

1. (SBU) Summary: Just one month after the Government of
Japan,s August 29 announcement of an economic policy package
(reftel), the Cabinet Office approved September 29 the first
supplemental budget for FY2008 to fund a portion of the
spending promised under the package, and submitted it
immediately to the Diet. The supplemental budget includes a
net 1.1 trillion ($10.5 billion) in general account spending
and another 0.2 trillion in Fiscal Investment and Loan
Program (FILP, often referred to as the "second budget")
outlays. Excluding expenditures unrelated to headline
figures of the 11.7 trillion ($111.5 billion) economic
package, the first supplemental budget funds about 1.8
trillion ($17 billion) in central government expenditures,
and 0.2 trillion ($1.9 billion) in FILP outlays. The
combined 2 trillion ($19 billion) in funding represents 17%
of the total amount committed under the August 29 package.
The remaining 83% portion of the package consists largely of
local government spending and an expansion of government loan
guarantee programs. In addition, the Cabinet will compile a
second FY2008 supplemental budget in December to finance
individual income tax cuts also promised in the economic
package. End Summary.

2. (SBU) It is uncertain at this stage whether and when the
Diet will approve the proposed first supplemental budget. If
an election does not interrupt the current session, the Diet
is expected to approve it in early December. However, if
opposition parties that have the majority in the Upper House
decide to block its passage, Diet approval will be delayed
(Japan,s constitution stipulates that, at the latest, a
budget bill will become law 30 days after Lower House
approval, regardless of consent from the Upper House).
Furthermore, the possibility looms that Prime Minister Aso
may dissolve the Lower House for a general election prior to
Diet deliberations on the supplemental budget.

General Account Overview
-------------------------
3. (SBU) The proposed first FY2008 supplemental budget will
increase total general account budget expenditures by a net
1.1 trillion ($10.5 billion) above the already authorized
83.1 trillion ($791 billion) in the initial FY2008 budget.
This net increase represents about 1.3% of the regular
budget, or 0.2% of GDP. The supplemental budget will fund
2.1 trillion ($20 billion) in new expenditures, consisting
of 1.8 trillion ($17 billion) of spending promised under the
economic stimulus package, and another 0.3 trillion ($2.9
billion) transfer to a sinking fund. In addition, the
supplemental budget will reduce outlays previously authorized
under the initial budget by 1.1 trillion ($10 billion).
Financing for this new spending will be provided by FY2007
unused funds and additional government borrowing. The
Ministry of Finance (MOF) will issue nearly 0.4 trillion
($3.8 billion) in additional Japanese government bonds (JGB)
representing the first JGB issuance to finance the
supplemental budget since FY2002.

FILP Account
-----------
4. (SBU) The Cabinet also approved a first supplemental FILP
budget for FY2008, which will provide roughly 0.2 trillion
($1.9 billion) in new outlays. This increase represents
about 1.3% of the initial FILP outlays (13.9 trillion/$132
billion), or 0.03% of GDP. Three government affiliated
financial institutions such as the National Life Finance
Corporation, will receive 0.2 trillion ($1.9 billion) from
the FILP. There was no additional FILP allocation for public
works-implementing institutions. Financing for the FILP
supplemental is provided entirely by the issuance of FILP
bonds.
SCHIEFFER

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