The Tokyo Budget Gauntlet

Japan's bureaucracy laid down the fiscal gauntlet to Yukio Hatoyama's government Friday by requesting the biggest budget in the country's history. If Mr. Hatoyama is serious about trimming back big spending, now is the time to prove it.

The new prime minister is caught in a trap of his own making. On the campaign trail, he pledged populist handouts for pensioners, students, parents and the unemployed and said he'd pay for it all by cutting spending. The initial budget for next fiscal year was already a record 88 trillion yen ($974 billion).

But it's hard to cajole public servants into voluntarily cutting waste and jobs. Friday, the government announced it had received a record 95 trillion yen of spending requests. The finance ministry estimates a little over four trillion yen of that overshoot comes from the Democratic Party of Japan's own campaign pledges, but that's probably an understatement. The Ministry of Health, Labor and Welfare, which would administer the DPJ's populist promises, wants an almost 15% spending hike.

Finance Minister Hirohisa Fujii Friday said the budget request was "troubling." Indeed it is. Tokyo has embarked on a spending spree over the last two years in a quixotic quest to buy economic growth. Instead the trillions of yen Tokyo sprayed into the world's second-largest economy have resulted in almost total stagnation. Meanwhile, tax revenues are down as corporate profits languish.

Even if Mr. Hatoyama succeeds in trimming back the bureaucracy's ambitions—no sure thing without some serious arm-twisting—that's not enough to get Japan back on the path to growth. Rather than try to reshuffle monies from one public spending program to another, Mr. Hatoyama and his team have to make Japan an attractive place to do business, both for residents and foreigners. If he doesn't do that, this year's budget battle, won or lost, will be only the first step down the road to another destructive lost decade.