TOKYO, Dec 24: Japan’s government rubber stamped an austere budget on Saturday, slashing spending to an eight-year low, with military and foreign aid cut as mounting debt threatens the world’s second largest economy.

The state budget for the year to March 2007, presented by the finance ministry on Tuesday, is worth 79.69 trillion yen ($686 billion), down 3.0 per cent from the current term and the first drop in four years.

It is also the first time in eight years the budget is below 80 trillion yen.

Prime Minister Junichiro Koizumi’s cabinet is scheduled to present the budget to the Japanese parliament for approval when it convenes an ordinary session on January 20.

The budget assumes a decline in new bond issues to 29.97 trillion yen, the first figure below 30 trillion yen in five years, helped by higher corporate tax revenue and a series of recently announced tax hikes.

“We managed to curb the issuance of new government bonds within 30 trillion yen. We will increase what has to be increased and reduce what has to be reduced,” Koizumi told reporters after his cabinet of ministers approved the budget plan.

But, despite the cut in bond issues, national debt held by the central and local governments is expected to grow to 775 trillion yen by March 2007 from 770 trillion yen at the end of March 2006.

The budget is befitting the government which intends to continue reform, Chief Cabinet Secretary Shinzo Abe said.

The March 2007 figure is about 1.51 times Japan’s nominal gross domestic product and significantly up from the low of 278 trillion yen at the end of March 1992, when the ratio was just 58.6 per cent of GDP.

Koizumi triumphed in September elections on a promise to privatize the massive post office and rein in government spending so as to buttress the country’s financial position.

Japan Post’s three trillion dollars in assets are largely invested in bonds that have let the government finance its ballooning budget deficit on the cheap.—AFP