Tokyo, May 18 (Bloomberg) -- Japanese Prime Minister Junichiro Koizumi plans to overhaul the government's $40 billion highway budget, controlled for decades by rival Liberal Democratic Party lawmakers, as he tries to rein in government spending. Koizumi and Finance Minister Masajuro Shiokawa agreed to review spending on highways, dams and airports under special budgets and channel more money into garbage disposal systems, pollution prevention and urban development, Shiokawa said at a press conference. Under a 48-year-old law aimed at modernizing Japan's public works, the government must put part of its tax receipts from gasoline, benzene and car ownership into the highway budget, which accounts for about 10 percent of total spending. Now, the government says it's time to update the way it uses taxpayers' money. ``There will be no sacred cows,'' Koizumi told reporters at the prime minister's residence. ``Even the special budget will be targeted by my reform plan.'' Control of the highway budget has brought political clout for LDP lawmakers since Prime Minister Kakuei Tanaka introduced it half a century ago. The party faction he formed, now led by former Prime Minister Ryutaro Hashimoto, has held the reins of Japanese politics for decades -- until Koizumi beat Hashimoto in last month's presidential race.
Koizumi Test
``Changing the road budget will be a real test of how seriously Koizumi is committed to making a difference,'' said Takehiro Sato, an economist at Morgan Stanley Dean Witter Japan. ``If he gives in to resistance from within the LDP, voters will conclude his administration is just the same old LDP government with a new cover, and he's just a new cover boy.'' Koizumi has pledged to reduce Japan's public debt -- expected to swell to 129 percent of gross domestic product this year -- by cutting state spending. At the same time, he has to avoid drastic spending cuts to prevent the economy from sinking further. The only solution may be to eliminate wasteful spending on public works -- something previous prime ministers have tried in vain to do. Shiokawa said budget changes won't stop at highway spending. The government will also review other special budgets pegged to revenue from specific taxes. Airplane fuel taxes, for example, must be used to build airport facilities, and revenue from electricity taxes must be spent on dams and power generation.
Vested Interests
LDP lawmakers have drawn criticism for using special budget funds to build rarely used local airports and controversial dams. The government stepped up spending on public works after World War II as it tried to catch up with the U.S. and Europe. The highway budget's original aim of improving access to remote parts of Japan has been met. ``The social situation has changed since Japan introduced the special budget system,'' Shiokawa said. ``We want to put more money toward urban development and other purposes.'' Koizumi has pledged to challenge Japan's political status quo as he pushes through changes aimed at ending an economic slump. He said in his maiden policy speech that he ``won't be daunted by the walls of the vested interests.'' His efforts to reverse decades of party policy will probably face ``substantial resistance within the LDP,'' Morgan Stanley's Sato said. That resistance is already appearing. At the LDP's general affairs meeting today, ``most legislators opposed reconsidering the budget,'' Mikio Aoki, head of LDP's upper house legislators, said. The party's chief policymaker, Taro Aso, told the meeting the party won't start discussions at least until after the upper house election on July 29, Aoki said. ``Reviewing the budget will involve a wide range of issues, including tax systems and it can never be achieved without the whole party discussing it,'' Aoki said.