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Speech on Fiscal Policy by Minister of Finance Aso at the 198th Session of the National Diet

January 28, 2019

Before requesting deliberation on the draft budget for FY2019 and the second draft supplementary budget for FY2018, 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)

The Japanese economy is in a continuous moderate recovery, with a virtuous circle progressing, in which improvement in the corporate sector is spreading to the household sector.
In this situation, the duration of the current economic recovery was ranking among the longest recoveries in the postwar era as of December last year.
Under these circumstances, it is necessary to continue to make steady efforts to achieve economic revitalization and fiscal consolidation. The key to doing that is dealing with the declining birthrate and aging population. As part of efforts to do that, it is important to establish a social security system oriented to all generations and secure its sustainability. From this viewpoint, we will implement expenditure reform in line with the New Plan to Advance Economic and Fiscal Revitalization and also secure a stable source of funds by raising the consumption tax rate in October this year.
In preparation for the consumption tax rate hike, we will do our utmost, making every effort to ensure continued economic revitalization, including measures for smoothing out demand fluctuations.
While the global economy continues to recover moderately, there are also downside risks. In this situation, Japan will hold the G20 meeting of finance ministers and central bank governors for the first time this year. We will lead active and constructive discussions toward establishing the foundation for realizing sustainable and inclusive growth of the global economy by taking advantage of the opportunities as the chair country.

(Outline of the budget and the tax reform for FY2019)

Next, I will explain the outline of the budget and the tax reform for FY2019.

The budget for FY2019 seeks to achieve economic revitalization and fiscal consolidation simultaneously while appropriately dealing with important challenges that Japan is facing now.
Specifically, approximately 720.0 billion yen will be allocated for measures to enhance social security, including making preschool education and nursing free-of-charge, in order to promote a shift to a social security system oriented to all generations, by using a tax revenue increase due to the consumption tax rate hike scheduled for October this year.
Next, in addition to ordinary budget measures, we will implement “temporal and special measures” in order to even out any change in demand due to the consumption tax rate hike. As a result, a total of approximately 2.03 trillion yen will be allocated for necessary measures, including those related to the award of loyalty points by small and medium-sized retailers and the provision of premium vouchers to low-income and child-caring households.
As part of the “temporal and special measures,” approximately 1.35 trillion yen will be allocated for projects planned to be implemented in FY2019 under the three-year emergency response plan for disaster prevention, disaster mitigation, and building national resilience, which is intended to maintain the functions of critical infrastructure supporting disaster management and the national economy and the everyday lives of the Japanese people.
Meanwhile, as this is the first year of the New Plan to Advance Economic and Fiscal Revitalization, we reviewed and revised the overall expenditure through such measures as continuing expenditure reform efforts in line with the principle of the plan, and we reduced the amount of newly-issued Japanese government bonds (JGBs) by approximately 1.03 trillion yen. As a result, we reduced the amount of newly-issued JGBs for the seventh consecutive year since the inauguration of the Abe Cabinet, and the issuance amount was reduced approximately 11.58 trillion yen compared with the issuance amount under the initial budget for FY2012.

On the expenditure side, general expenditure, including expenditure for both ordinary budget measures and “temporal and special measures,” will be approximately 61.96 trillion yen. Total expenditures in the general account will be approximately 101.460 trillion yen, including approximately 15.99 trillion yen in local allocation tax grants and approximately 23.51 trillion yen in expenditure for national debt service.

Regarding revenues, tax revenues are estimated at approximately 62.50 trillion yen, the highest-ever level, and other revenues are estimated at approximately 6.30 trillion yen. Government bond issues are budgeted at approximately 32.66 trillion yen.

Next, I will explain our key expenditures.

With regard to social security expenditure, in line with the New Plan to Advance Economic and Fiscal Revitalization, we made various expenditure-curbing efforts. As a result, we accomplished the policy of keeping the real expenditure growth lower than the growth due to the aging of society. In addition, we will use the increase in consumption tax revenue to make preschool education and nursing free-of-charge, to further ease the burden of nursing care insurance premium payments on low-income elderly people and to provide financial aid to pensioners.

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 reduction of the economic burden of preschool education and higher education, university reforms, and the development of safe and secure school facilities. In addition, we will enhance science and technology infrastructure and promote innovation by giving resource allocation priority to young researchers.

In terms of local government finance, the budget contributes to the fiscal consolidation of local governments as we have significantly reduced the issuance of bonds for the extraordinary financial measures while ensuring an appropriate level of total general revenues for local governments.

Regarding national defense expenditure, in consideration of the newly formulated National Defense Program Guidelines and the Medium-Term Defense Program, we will enhance the defense capabilities in order to deal with the increasingly severe security environment. At the same time, we will further improve efficiency and rationalize defense capability development.

As for expenditure related to public works, in addition to introducing subsidies for specific purposes in order to provide systematic and intensive support to local governments and implementing measures to deal with the aging of facilities, we will prioritize infrastructure development projects intended to improve productivity.

With regard to economic assistance, we have secured the necessary amount for ODA projects in terms of both budget and volume while prioritizing measures to put into practice the Free and Open Indo-Pacific initiative from the perspective of supporting strategic diplomacy.

As for expenditure related to small and medium-sized enterprises (SMEs), we will enhance support for investment in equipment and other items for the purpose of productivity improvement and assistance for business succession and also devote full-fledged efforts to measures related to financing.

Regarding expenditure for energy measures, we will promote innovation toward realizing a hydrogen society and make efforts to increase the resilience of electric power infrastructure and fuel supply infrastructure.

With regard to the budget related to agriculture, forestry and fisheries, we will enhance fishery resource management and strengthen support necessary for turning the fishery industry into a growth industry. We will also make efforts to strengthen the export competitiveness of the agricultural, forestry and fishery industries.

Regarding reconstruction from the Great East Japan Earthquake, we project a total of approximately 2.13 trillion yen in the FY2019 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 FY2019, we will allocate approximately 13.12 trillion yen, with a view to strengthening the growth potential, in order to respond to the necessary funding needs, including acceleration of the development of expressways and enhancement of the disaster management functions of Kansai International Airport utilizing low interest rates. We will also promote industrial investment to strengthen the supply of equity investments from the private sector.

The total issuance amount of JGBs for FY2019, including refunding bonds, will remain very high, at approximately 149 trillion yen, so we will continue to appropriately implement our debt management policy based on close dialogue with markets participants.

As for the tax reform for FY2019, in preparation for the consumption tax rate hike, we will implement support measures for housing and automobiles from the viewpoint of smoothing out demand fluctuations. At the same time, in order to overcome deflation and secure economic revitalization, we will revise the research and development taxation system.
In addition, we will also revise domestic laws related to the international taxation system in order to address international tax avoidance in an effective manner and take measures to enhance compliance in view of the diversification of economic transactions, etc.

(Summary of the second supplementary budget for FY2018)

Next, I will explain the outline of the second supplementary budget for FY2018.

Under the supplementary general account budget, additional expenditure of approximately 3.04 trillion yen has been adopted with respect to additional fiscal demand related to our response to immediate challenges, including the implementation of measures included in the three-year emergency response plan for disaster prevention, disaster mitigation, and building national resilience that should be immediately initiated in the first year. In addition, some funds were transferred to the Special Account for the National Debt Consolidation Fund and the Special Account for Distribution of Local Allocation and Shared Taxes.
The additional expenditure will be covered by a reduction of approximately 1.29 trillion yen in existing expenditure on the expenditure side and by an increase of approximately 850 billion yen in tax revenue, an increase of approximately 140 billion yen in non-tax revenue and surplus funds of 710 billion yen in the previous fiscal year on the revenue side. In addition, government construction bonds with a total value of approximately 1.31 trillion yen will be issued and the issuance amount of deficit-financing government bonds will be reduced by 300 billion yen.
As a result, the total general account budget for FY2018 after the second supplementary budget will be approximately 101.36 trillion yen, which represents an increase of approximately 2.71 trillion yen from the general account budget after the first supplementary budget.
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 for FY2019 and the second draft supplementary budget for FY2018.
As we move toward a new era, we need to realize economic revitalization and fiscal consolidation simultaneously and ensure continued economic revitalization while paying sufficient attention to the global economic trends. In light of this situation, it is necessary to enact the budget and related bills 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 with respect to our fiscal and other policies.