TOKYO (Reuters) - Japan must pursue “wise spending” to back digital transformation and better productivity rather than simply boosting the size of stimulus in the wake of the COVID-19 pandemic, an advisory panel to Finance Minister Taro Aso said on Wednesday. The fiscal system council urged the government to step up efforts to achieve a primary budget surplus by the fiscal year ending in March 2026 to restore tattered public finances. The panel’s semi-annual recommendation provides the basis for discussion on an annual budget for the coming fiscal year that begins next April - the first spending plan under Prime Minister Yoshihide Suga who took office in September. Next month, the government will compile the draft annual budget for fiscal 2021 and an extra budget for this fiscal year. Suga has set digitalisation and environmental policy as core pillars of his growth strategy, with the aim of accelerating innovation and investment in the two areas. He has set an ambitious aim of cutting greenhouse gases to zero by 2050. “We must shift focus away from mere cash payouts and uniform stopgap measures towards improving productivity and dealing with structural changes with an eye on ‘with corona and post corona’,” the panel said. The first budget under Suga underscores a challenge to his efforts to contain the pandemic, revive the economy and curb snowballing debt that tops twice the size of the country’s $5 trillion economy. Japan’s ministries have asked for a record 105.4 trillion yen ($1.01 trillion) in the initial budget for the next fiscal year, which includes responses to COVID-19 after the pandemic triggered the country’s deepest postwar recession. Two extra stimulus budgets compiled so far this fiscal year to tackle the virus will boost overall government spending to 160 trillion yen, or 1.6 times the initial budget.