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Speech on Fiscal Policy by Minister of Finance Aso at the 193th Session of the National Diet

January 20, 2017

Before requesting deliberation on the draft budget for FY2017 and the third draft supplementary budget for FY2016, I would like to state the basic approach underlying the government's fiscal policies and provide an outline of the draft budget.

(Current state of the Japanese economy and basic approach to fiscal policies)

Concerning the current state of the Japanese economy, efforts made by the Abe Cabinet have created a positive cycle of the economy, with the employment and income situation steadily improving, for example. To reinforce the positive cycle, we will further accelerate Abenomics by mobilizing monetary policy, fiscal policy and structural reforms.
In order to realize a society in which all citizens are dynamically engaged, we will promote a growth strategy toward expanding investments for the future. At the same time, we will enhance the potential growth rate in order to tackle the issues of an aging society with a low birth rate by promoting environmental improvements for childcare and nursing care.
With respect to the severe fiscal condition, in order to maintain fiscal sustainability, we will strengthen the ongoing expenditure and revenue reforms in line with ”The Plan to Advance Economic and Fiscal Revitalization” and the roadmap for reforms with a view to achieving the goal of bringing the primary balance into surplus by FY2020.

(Summary of the budget for FY2017 and outline of the tax system revision)

Next, I will explain the outline of the budget for FY2017 and the tax system revision.

As FY2017 is the second year of ”The Plan to Advance Economic and Fiscal Revitalization”, the budget for the year is intended to realize economic revitalization and fiscal consolidation simultaneously while appropriately dealing with important challenges for the moment.
Specifically, in order to realize a society in which all citizens are dynamically engaged, we will make sure to implement such major initiatives as improving the wages of childcare workers and long-term nursery workers and establishing a grant-type scholarship program. We will increase expenditure related to science and technology and implement initiatives that directly lead to economic revitalization, including prioritization of growth fields in the allocation of expenditure related to public works. From the perspective of securing the safety and security of the people’s lives, we will also strengthen the coast guard system and enhance the information-gathering and response capabilities in preparation for possible acts of terrorism.

General expenditure will be approximately 58.36 trillion yen. Total expenditures in the general account will be approximately 97.45 trillion yen, including approximately 15.57 trillion yen in local allocation tax grants and approximately 23.53 trillion yen in expenditure for national debt service.

Regarding revenues, tax revenues are estimated at approximately 57.71 trillion yen and other revenues are estimated at approximately 5.37 trillion yen. Government bond issues are budgeted at approximately 34.37 trillion yen, a decrease of approximately 60 billion yen from the initial budget for FY2016.

Next, I will explain our key expenditures.

With regard to social security expenditure, in order to realize a society in which all citizens are dynamically engaged, we will improve the wages of childcare workers and long-term nursery workers. We will also expand childcare facilities and enhance social security through such measures as shorten the minimum eligible period for receiving pension benefits. On the other hand, from the perspective of establishing a sustainable social security system, we will steadily implement the reforms of the healthcare and nursing care systems in line with the roadmap for social security-related reforms.

With respect to expenditure for education and science, we will enhance initiatives intended to realize a society in which all citizens are dynamically engaged, including establishing a grant-type scholarship program and expanding the interest-free scholarship program, and we will also carry out university reforms and improve the education environment. In addition, we will place emphasis on promoting research and development programs that will induce business investment and raise the Japanese economy’s growth potential.

In terms of local government finance, we have given maximum consideration to local governments by increasing local allocation tax grants in order to ensure an appropriate level of their total general revenues while making revisions on the expenditure side, including reduction of special expenditure quotas.

Regarding national defense expenditure, we will take necessary budgetary measures based on the Medium Term Defense Program. We will also steadily promote the realignment of the U.S. military forces stationed in Japan in order to reduce the burden imposed by U.S. bases in Okinawa.

As for expenditure related to public works, we will prioritize and rationalize disaster prevention and mitigation measures that take into consideration the risk of heavy rains, typhoons and other disasters and projects that will induce business investment and raise Japan’s growth potential.

With regard to economic assistance, we have secured a necessary amount for ODA projects in terms of both budget and volume while prioritizing measures to deal with global challenges, such as refugee-related measures.

As for expenditure related to small and medium-sized enterprises (SMEs), we will enhance measures to support business succession and measures related to subcontracting work and will also devote full-fledged efforts to measures to raise productivity and measures for financing.

Regarding expenditure for energy measures, we will promote the development of domestic resources and securing of rights in overseas resources and implement nuclear disaster prevention and mitigation measures while prioritizing support for the promotion of energy conservation.

Concerning the budget related to agriculture, forestry and fisheries, in order to turn the agricultural, forestry and fisheries industries into growth industries, we will strengthen their export competitiveness and enhance efforts to improve agricultural infrastructure.

In terms of the personnel cost of national public servants, the budget accurately reflects a salary revision, a comprehensive review of the salary scale and a net reduction in personnel.

Regarding recovery from the Great East Japan Earthquake, we project a total of approximately 2.69 trillion yen in the FY2017 Special Account for Reconstruction from the Great East Japan Earthquake in order to address problems in each stage of reconstruction.

With respect to the Fiscal Investment and Loan Program for FY2017, we will take advantage of the current super-low-interest situation, thereby bringing forward the opening of the entire Superconductive Maglev (Linear Chuo Shinkansen). We will also actively provide long-term risk money to steadily implement the growth strategy and achieve regional revitalization, thereby properly responding to the necessary funding needs. As a result, we plan to allocate a total of approximately 15.13 trillion yen.

The total issuance amount of JGBs for FY2017, including refunding bonds, will remain very high at approximately 154 trillion yen, so we will appropriately implement our debt management policy based on close dialogue with the markets.

As for the tax reform for FY2017, in order to raise the Japanese economy’s growth potential, we will revise the spouse deduction so that there will be no need to be concerned about the working hour adjustment. We will also revise the research and development tax system and tax credit for the Income Expansion intended to encourage wage hikes from the perspective of promoting the virtuous economic cycle.

In addition, we will carry out liquor tax reform from the perspective of restoring fairness in tax burden among different kinds of liquors. We will also revise the CFC (controlled foreign company) rules in order to address international tax avoidance in an effective manner without impeding Japanese companies’ overseas business operation.

Furthermore, we will introduce special cases related to disasters.

(Summary of the third supplementary budget for FY2016)

Next, I will explain the outline of the third supplementary budget for FY2016.

Under the supplementary general account budget, additional expenditure of approximately 620 billion yen has been adopted, including expenditure related to disasters, international contributions, and expenditure to ensure stable operation of the Self-Defense Forces. The additional expenditure will be covered by a reduction of approximately 420 billion yen in existing expenditure, an increase of approximately 100 billion yen in non-tax revenue and issuance of government construction bonds with a total value of approximately 100 billion yen.
On the other hand, a decrease of approximately 1.74 trillion yen in tax revenue is projected in consideration of the recent revenue results. In addition, in order to make up for a decrease in financial sources for local allocation tax grant due to decline in local corporate tax revenue, local corporate tax grants are budgeted. Additional special deficit-financing bonds with a total value of approximately 1.75 trillion yen will be issued for these measures.
As a result, the total general account budget for FY2016 after the third supplement will be approximately 100.22 trillion yen, which represents an increase of approximately 210 billion yen from the general account budget after the second supplement.
Necessary supplementary measures are also planned for the special account budget.

(Concluding remarks)

This concludes my explanation of the government's basic approach to fiscal policies, the outline of the draft budget and tax reform for FY2017 and the third supplementary budget for FY2016.
The earliest possible approval of the budget and related bills is necessary in order to establish a positive cycle of growth and distribution and achieve a sustained expansionary equilibrium of the Japanese economy as a whole while realizing both economic revitalization and fiscal consolidation, and that will be the greatest economic stimulus.

I hereby request that the Diet deliberate on the budget and promptly give its approval. I also sincerely ask for the understanding and cooperation of all the people of Japan and my fellow parliamentarians, from both the ruling and opposition parties, with respect to our fiscal and other policies.