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Speech on Fiscal Policy by Minister of Finance Nakagawa at the 171st Session of the National Diet

Speech on Fiscal Policy by Minister of Finance Yosano at the 171st Session of the National Diet

April 27, 2009

We have prepared a draft supplementary budget (Article 1 of the General Account, Article 1 of the Special Account, and Article 1 of the Budgets of Government Agencies) for FY 2009 in response to the recently adopted “Policy Package to Address Economic Crisis.” Before I request deliberation on it, I would like to provide an outline of the draft supplementary budget.

(Recent economic situation and the Policy Package to Address Economic Crisis)

First, I would like to describe the recent economic situation and the Policy Package to Address Economic Crisis.

To address the deterioration in the economic situation since last summer, the government has compiled a series of economic stimulus measures totaling approximately 75 trillion yen, including 12 trillion yen for fiscal stimulus measures. We are promptly implementing the FY 2009 budget with the highest priority given to economic recovery.

However, the sharp downturn in the Japanese economy has continued, even after the end of last year, when the FY 2009 budget was formulated. Against the background of global economic contraction, exports and industrial production are decreasing substantially, while the employment situation is rapidly getting worse. The financial environment, including the cash position of enterprises, remains severe. Clearly, Japan is in an economic crisis.

Looking at the future, Japan faces structural challenges, such as the need to address the falling birthrate and the aging population and how to create a low-carbon society. We should appropriately deal with these issues while transforming the economic structure by moving away from growth dependent on foreign demand to that driven by domestic demand.

International society shares the view that fiscal policy is crucial to shoring up growth and employment under the current severe economic situation. This is reflected in the fact that at the financial summit on April 2, world leaders agreed to deliver sustained fiscal effort on a scale sufficient to restore growth and employment.

With this economic situation in view, the government adopted the Policy Package to Address Economic Crisis on April 10.

This Policy Package comprises four strategies. The first consists of the enhancement of immediate employment measures, including employment adjustment subsidies, in an effort to stop the economy from falling into a negative spiral; the implementation of comprehensive measures to facilitate corporate financing by increasing funds for loans and guarantees; and the front-loading of public works projects.

The second strategy focuses on particularly urgent measures needed in three specific fields in order to foster medium- to long-term growth. The "low-carbon revolution" is the first field. This is aimed at the promotion and dissemination of solar power generation, environmentally-friendly vehicles and environmentally-friendly home electric appliances. In the second field of "health, longevity and child-rearing," emphasis will be placed on the revitalization of local health care services, the strengthening of long-term care services, and the enhancement of child-rearing support through the expansion of the fund for child-rearing. The third is "realization of the potential of the Japanese economy and development of infrastructure to deal with the challenges of the 21st century." This will involve efforts to improve Japan's capacity to become self-sufficient in food through the efficient use of farmland and programs to enhance cooperation between regions and their competitiveness through the completion of the "missing links" in the highway network and the enhancement of harbor and airport infrastructures.

The third strategy stresses disaster management and safety measures aimed at easing people's anxiety and enhancing their vitality. It is also intended to provide fiscal support for local governments under programs such as the "Special grant for revitalization of regions and public investment," which is expected to facilitate public investment at the regional level, and the "Special grant for revitalization of regions and the policy package to address economic crisis," which will allow local governments to actively conduct detailed projects tailored to regional needs.

The fourth strategy is tax breaks to stimulate demand, including a temporary measure to reduce gift tax for purchasing houses.

Measures constituting the Policy Package have been carefully chosen for their potential for shoring up the economy and driving future growth. By giving them priority and boldly implementing them, the government aims to induce a self-sustaining recovery in private demand.

While taking these measures, the government needs to fulfill its fiscal responsibilities in the medium term. In light of drastic changes in economic conditions and the policies carried out under a series of economic stimulus measures, we will steadily take steps toward maintaining fiscal discipline, establishing a sustainable social security system, and securing stable revenues to finance such a system.

(Outline of the draft supplementary budget for FY 2009 [Article 1 of the General Account, Article 1 of the Special Account, and Article 1 of the Budgets of Government Agencies])

Next, I will outline the draft supplementary budget for FY 2009 (Article 1 of the General Account, Article 1 of the Special Account, and Article 1 of the Budgets of Government Agencies) which we have submitted.

First, with regard to expenditures related to the Policy Package to Address Economic Crisis, we have allocated 1.2698 trillion yen for employment measures, 2.9659 trillion yen for financial measures, 1.5775 trillion yen for the low-carbon revolution, 2.0221 trillion yen for health, longevity and child-rearing, 2.5775 trillion yen for realization of the potential of the Japanese economy and development of infrastructure to deal with the challenges of the 21st century, 198.1 billion yen for revitalization of regions, 1.7089 trillion yen for safety and security, and 2.379 trillion yen to support local governments, for a total of 14.6987 trillion yen. In addition, while budget surplus funds will be transferred to the Special Account for the Government Bonds Consolidation Fund, the Contingencies for Emergency Economic Responses will be reduced.

As for revenues, receipts of 3.1 trillion yen from the financing loan fund account of the Fiscal Investment and Loan Program special account will lead to a projected increase of 3.1616 trillion yen in other revenues. Construction bonds of 7.332 trillion yen will also be issued.

In order to make up the outstanding shortfalls in revenues, we will have to take the additional step of issuing special deficit-financing bonds of 3.487 trillion yen. With this measure, the total amount of government bond issuance for FY 2009 will be 44.113 trillion yen, and the bond dependency rate will be 43.0 percent.

As a result of these measures, the total amount of the general account budget for FY2009, including the supplementary budget, will be 102.4736 trillion yen: an increase of 13.9256 trillion yen from the initial budget in both revenues and expenditures.

In relation to these supplementary steps for the general account, we will also take necessary supplementary steps for the special account budgets and the budgets of government-affiliated agencies.

In order to implement the Policy Package to Address Economic Crisis, we will increase the amount of the Fiscal Investment and Loan Program by 7.8423 trillion yen in this draft supplementary budget.

In connection with the Policy Package to Address Economic Crisis, we are submitting two bills, including the "Bill to Amend the Act on Special Measures Concerning Taxation." We are aware that four bills, including the "Bill to Amend the Development Bank of Japan Inc. Law," will also be submitted.

This concludes the outline of the draft supplementary budget for FY 2009 (Article 1 of the General Account, Article 1 of the Special Account, and Article 1 of the Budgets of Government Agencies). I hereby request that the Diet deliberate on this supplementary budget as well as related bills and promptly give approval to them.

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