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Speech on Fiscal Policy by Minister of Finance Aso at the 196th Session of the National Diet

January 22, 2018

Before requesting deliberation on the draft budget and the tax reform for FY2018 and the draft supplementary budget for FY2017, 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)

As a result of the efforts made by the Abe Cabinet so far, the virtuous cycle of the economy is being realized steadily against the backdrop of significant improvement in the employment and income situations. In order to better establish this positive cycle of the economy and achieve sustainable economic growth, we will tackle the declining birthrate and aging population, which is the greatest long-term challenge, with Supply System Innovation and Human Resources Development Revolution as twin pillars, based on the New Economic Policy Package adopted in December last year.
We will use part of the revenue increase from the consumption tax rate hike to 10%, which is scheduled for October 2019, as a source of funds for Human Resources Development Revolution. As a result, it will become difficult to achieve the goal of bringing the primary balance into surplus by FY2020, but we will firmly maintain the goal of bringing the primary balance into surplus by FY2020 while never abandoning the principle of fiscal consolidation. To achieve this goal, we will set forth a concrete and highly effective plan under the Basic Policy on Economic and Fiscal Management and Reform for this year.

(Outline of the budget and the tax reform for FY2018)

Next, I will explain the outline of the budget and the tax reform for FY2018.

In consideration of the New Economic Policy Package, we have prioritized important challenges such as expanding nursery facilities and promoting investment by core regional companies in equipment and human resources under the budget for FY2018. At the same time, the budget is intended to achieve economic revitalization and fiscal consolidation simultaneously by achieving targets concerning general expenditure and other items under the Plan to Advance Economic and Fiscal Revitalization and by reducing the issuance amount of government bonds for the sixth consecutive year since the inauguration of the Abe cabinet.
On the expenditure side, general expenditure will be approximately 58.9 trillion yen. Total expenditures in the general account will be approximately 97.71 trillion yen, including approximately 15.51 trillion yen in local allocation tax grants and approximately 23.30 trillion yen in expenditure for national debt service.

Regarding revenues, tax revenues are estimated at approximately 59.08 trillion yen and other revenues are estimated at approximately 4.94 trillion yen. Government bond issues are budgeted at approximately 33.69 trillion yen, a decrease of approximately 680 billion yen from the initial budget for FY2017.

Next, I will explain our key expenditures.

With regard to social security expenditure, we will carry out reforms in various fields, including complete reform of the drug price system, from the perspective of establishing a sustainable social security system. We will also promote an increase in nursery facilities by frontloading the implementation of the Plan for Raising Children in Peace of Mind.

With respect to expenditure for education and science, we will rationalize the prescribed number of teachers and school staff and prioritize fields where it is necessary to increase the number. We will also promote the reduction of the economic burden of preschool education and higher education, university reforms, and the development of safe and secure school facilities. Moreover, we will promote science and technology innovations.

In terms of local government finance, we have made revisions on the expenditure side, including reduction of special expenditure quotas, but on the other hand, we have given maximum consideration to local governments by ensuring an appropriate level of total general revenues for them while decreasing local allocation tax grants, reflecting tax revenue growth for local governments.

Regarding national defense expenditure, we will appropriately deal with North Korea’s nuclear and missile development, which has become a more serious and immediate threat than before, and 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 infrastructure development intended to improve productivity and disaster prevention and mitigation measures that take into consideration the risk of heavy rains, typhoons and other disasters.

With regard to economic assistance, we have secured the necessary amount for ODA projects in terms of both budget and volume while prioritizing the Free and Open Indo-Pacific Strategy, among other items, from the perspective of supporting strategic diplomacy.

As for expenditure related to small and medium-sized enterprises (SMEs), we will enhance measures to support core regional companies and business succession at SMEs. We will also devote full-fledged efforts to measures related to human resources and financing.

Regarding expenditure for energy measures, we will enhance research and development for the introduction of renewable energy. We will also promote energy conservation and the development of domestic resources and securing of rights in overseas resources.

With regard to the budget related to agriculture, forestry and fisheries, we will enhance measures necessary for smoothly reforming the rice policy. We will also turn the forestry industry into a growth industry and strengthen its export competitiveness.

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 reduction of retirement allowances.

Regarding reconstruction from the Great East Japan Earthquake, we project a total of approximately 2.36 trillion yen in the FY2018 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 FY2018, we will support investment in equipment and other items by business operators and farmers to improve productivity and accelerate the development of expressways that form the core of the logistics network in order to properly respond to the necessary funding needs. As a result, we plan to allocate a total of approximately 14.46 trillion yen.

The total issuance amount of JGBs for FY2018, including refunding bonds, will remain very high at approximately 150 trillion yen, so we will continue to appropriately implement our debt management policy based on close dialogue with the markets.

As for the tax reform for FY2018, individual income taxation will be reviewed in light of the spread of diversified working styles. Additionally, in order to overcome deflation and achieve economic revitalization, taxation measures will be revised to spur wage hikes and productivity. Moreover, the business succession tax system will be expanded to facilitate business succession of SMEs and International Tourist Tax will be introduced to secure funds for tourism promotion. In addition, we will also revise domestic laws related to the international taxation system, promote electronic tax filing and revise the tobacco tax.
Regarding matters related to the procedures for management and disposal of government assets that were pointed out in the Diet, in consideration of the opinion of the Fiscal System Council, we will make revisions under the policy of clarifying the procedures, securing the objectivity of sales prices and thoroughly ensuring appropriate administrative document management.

(Summary of the supplementary budget for FY2017)

Next, I will explain the outline of the supplementary budget for FY2017.

Under the supplementary general account budget, additional expenditure of approximately 2.71 trillion has been adopted with respect to Supply System Innovation, Human Resources Development Revolution, disaster prevention and mitigation-related projects, including recovery from disasters, and measures to implement the Comprehensive TPP-related Policy Framework. We will also allocate approximately 190 billion yen as funds transferred to the Special Account for the National Debt Consolidation Fund. The additional expenditure will be covered by a reduction of approximately 1.24 trillion yen in existing expenditure, approximately 370 billion yen in surplus funds in the previous fiscal year, approximately 100 billion yen in non-tax revenue and issuance of government construction bonds with a total value of approximately 1.18 trillion yen.
As a result, the total general account budget for FY2017 after the supplement will be approximately 99.11 trillion yen, which represents an increase of approximately 1.65 trillion yen from the initial general account budget.

Necessary supplementary measures are also planned for the special account budget.

 With respect to the Fiscal Investment and Loan Program, 280 billion yen in additional expenditure will be allocated in light of the recent robust appetite for capital investment.

(Concluding remarks)

This concludes my explanation of the government's basic approach to fiscal policies, the outline of the draft budget and the tax reform for FY2018 and the supplementary budget for FY2017.

In order to better establish the positive cycle of the economy and achieve sustainable economic growth, we must continue to use all available policy measures. To that end, it is necessary to enact the budget and related bills, which will realize economic revitalization and fiscal consolidation simultaneously, as early as possible.

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.