February 20, 2026

Before requesting deliberation on the budget for FY2026, I would like to state the basic approach underlying the government’s fiscal policies and outline the draft budget.

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

Nominal GDP has exceeded 600 trillion yen and is approaching 700 trillion yen, and if high growth continues, an economic scale of some 1,000 trillion yen would be within reach by around 2040. As exemplified by the second consecutive year of wage growth higher than 5%, the Japanese economy has now reached the stage of shifting from a deflation and cost-cutting economy to a new growth-oriented economy. On the other hand, Japan finds itself confronting a decline in population, a situation we can rightfully deem a quiet emergency; a complete turnaround from our longstanding deflation to rising prices; and the most severe and complex security environment of the postwar era. Under these circumstances, Japan’s potential growth capacity has been sluggish and personal consumption has been lacking strength.

In this situation, it is important to promptly address rising prices in order to protect the people’s everyday lives and restore the strength of the Japanese economy.To do so, it is necessary to promptly and appropriately implement the supplementary budget for FY2025, which underlies “Comprehensive Economic Measures to Build a ‘Strong Japanese Economy,’” approved by the Cabinet and centered on the following three pillars: 1. Ensuring security and addressing rising prices; 2.Strategic investments that enhance resilience against potential crises: Building a robust economy through growth-oriented investment; and 3. Strengthening defense capability and diplomatic power. At the same time, it is necessary to conduct seamless economic and fiscal management by implementing the budget and tax reforms for FY2026.

The concept of “responsible and proactive public finances,” which the Takaichi government is upholding, represents a proactive, forward-looking approach to fiscal policy—and it is by no means an indiscriminate pursuit of expansion for its expansion’s sake. It is important to shift to a fiscal structure that supports a “strong Japanese economy” on both expenditure and revenue sides, for example by revising measures whose expected benefits are weak while boldly prioritizing measures that are expected to support the people’s daily lives and contribute to economic growth. The review of subsidies and special measures concerning taxation, to which I am devoting efforts as the minister in charge, are part of that initiative. By continuing to raise the growth rate while thoroughly pursuing wise spending, we will steadily reduce the outstanding government debt to GDP and ensure the sustainability of public finances and trust from the markets.

(Outline of the budget and tax reforms for FY2026)

Next, I would like to provide an outline of the budget and tax reforms for FY2026.

The budget for FY2026, following the approach of the supplementary budget for FY2025, is intended to realize a “strong Japanese economy”, so it promotes initiatives that extend across multiple years and initiatives to normalize the fiscal structure and increases budget allocations for important measures from the initial budget for the previous fiscal year. Specifically, the overall budget appropriately reflects the economic and price trends, including the revisions of medical fees and nursing care fees, and continues the implementation of important measures, including the strengthening of defense capabilities, support for children and child-rearing, and the promotion of green transformation (GX), artificial intelligence (AI), and the semiconductor industry, for which the government has already secured funds for implementation over multiple years. Moreover, budget allocations for so-called free education and other important measures have been increased through the securing of new financial resources and overall budget prioritization.

On the expenditure side, general expenditures will total approximately 70.16 trillion yen. The total amount of the general account, including approximately 20.88 trillion yen in local allocation tax grants, and approximately 31.28 trillion yen in government bond expenditures, will be approximately 122.31 trillion yen, an increase of approximately 7.11 trillion yen from the initial budget for the previous fiscal year.

On the other hand, on the revenue side, the government’s income from taxes and other revenues is expected to be approximately 83.74 trillion yen, and other revenues are expected to be approximately 8.99 trillion yen. Government bond issuance will be approximately 29.58 trillion yen, remaining below 30 trillion yen for the second straight year after dropping below that level in the initial budget for the previous fiscal year for the first time in 17 years.

As a result, the bond dependency ratio will decline further, to 24.2% from 24.9% in the initial budget for the previous fiscal year, decreasing below 30% for the first time in 27 years. At the same time, the primary balance in the central government’s general account will return to a surplus for the first time in 28 years in the initial budget. In this way, the budget for FY2026 maintains fiscal discipline as well.

Regarding the issuance of special deficit-financing bonds, we will submit a required bill separately to the Diet for deliberation.

Next, I would like to explain major expenses.

Concerning social security-related expenses, from the viewpoint of reducing the burden of insurance premium payments, including payments by the working-age generation, we limited the real growth of social security-related expenses to the extent owing to the aging of society through the accumulation of various institutional reforms and efficiency improvement efforts, including drug price revisions reflecting market prices and the reform of the High-Cost Medical Expense Benefit system. Based on that, we made additional allocations to cover measures to address the economic and price trends, such as responding to rising prices and wage increases through the revision of medical fees and improving the treatment of nursing care and welfare workers through the revision of nursing care fees and disability welfare service fees.

Regarding education and science promotion expenses, in light of the series of agreements reached among political parties, we have realized so-called free education while securing financial resources. In addition, we will take necessary measures to implement the program to limit the number of students per class at junior high schools to 35 at most. From the viewpoint of promoting Japan as a new kind of technology-driven nation, we will enhance basic research through increases in budget allocations for grants for the management of national universities and grants-in-aid for scientific research and also promote research and development related to critical technology areas, such as AI and quantum computing.

As for local government finances, we will reduce the issuance of local government’s temporary fiscal stimulus bonds to zero while ensuring that the total amount of local government general funds will be appropriately secured by making allocations for the revision of salary payments and price rises. In this way, we will work to put the finances of local governments on a sound footing.

Regarding national defense expenditures, amid the severe security environment, we will steadily promote the strengthening of defense capabilities based on the Defense Buildup Program while continuing to secure financial resources to stably maintain Japan’s defense capabilities.

Concerning public works-related expenditures, we will promote disaster prevention and mitigation and national land resilience through initiatives based on the lessons learned from the road collapse accident in Yashio City, Saitama Prefecture, and initiatives to integrate measures for hard and soft infrastructure, including the use of regulatory approaches and guidance methods. We will also focus on infrastructure development and other measures to enhance growth potential.

As for expenditures on economic assistance, we will promote the initiative to realize the Free and Open Indo-Pacific concept and implement ODA effectively and efficiently while strengthening collaboration with like-minded countries and Global South countries.

Regarding measures for small and medium-sized enterprises (SMEs), we will improve the environment for wage increases through such measures as promoting fair subcontracting transactions and productivity improvement and supporting business succession and mergers and acquisitions (M&As).

For energy measure expenses, we will issue GX Economy Transition Bonds in the special account budget for energy measures and support private-sector GX investments, which are necessary for achieving the carbon neutrality target. In addition, in the initial budget, we have increased budget allocations to cover activities such as implementing support measures in the AI and semiconductor sectors under the “AI and Semiconductor Industry Foundation Strengthening Framework” from the viewpoints of enhancement of industrial competitiveness, economic security, and energy policy.

Regarding the agriculture, forestry, and fisheries budget, as an intensive measure to reform the agricultural structure, we will secure financial resources for initiatives to consolidate farmlands into large plots in order to improve productivity and to promote smart agriculture, resulting in increases in budget allocations in the initial budget. We will also engage in activities such as resource management for the sustainable growth of the forestry and fisheries industries.

Concerning the reconstruction from the Great East Japan Earthquake, in order to meticulously implement measures such as supporting the return-to-home and relocation of affected people and mitigating reputational damage in the first fiscal year of the Third Reconstruction and Revitalization Period, the special account budget for Reconstruction from the Great East Japan Earthquake for FY2026 will be set at approximately 630 billion yen.

Regarding the restoration and reconstruction from the 2024 Noto Peninsula Earthquake and the torrential rains that followed, we will continue to implement measures such as support for the reconstruction of the lives and livelihoods of the victims and infrastructure restoration.

As for the Fiscal Investment and Loan Program for FY2026, the total amount will be set at approximately 19.02 trillion yen in order to build a resilient economic structure, promote active investment through public-private partnerships and address rising prices.

Concerning the Japanese government bond (JGB) management policy, we will further ensure the stable issuance of JGBs based on more careful dialogue with market participants amid changes in the financial market situation.

As for the FY2026 tax reform, the amount of the basic exemption will be raised in tandem with rising prices as a measure to address inflation. In addition, in order to respond to working hour adjustments and give consideration to low- and middle-income people, the minimum taxation threshold regarding income tax will be raised to 1.78 million yen ahead of other measures. In order to realize a “strong Japanese economy”, we will also establish a tax system to boldly promote capital investment, and from the viewpoint of optimizing special taxation measures, we will reform the tax system to promote wage increases and will enhance the research and development tax system. Moreover, we will revise the tax burden for people with extremely high incomes from the viewpoint of ensuring fairness in the tax burden and also create a special income tax related to defense.

(Conclusion)

This concludes my explanation of the basic concept of fiscal policy, and the outline of FY2026 budget and tax reforms.

Now that the Japanese economy has reached a turning point, it is necessary to seriously face up to the new economic and social situations, exemplified by rising prices and interest rates, amid the expansion of nominal GDP. Achieving both the building of a “strong Japanese economy” and “sustainability of public finances” in a well-balanced manner—that is the responsibility that we, as the generation that lives today, must fulfill in order to pass down Japan as a growing country with a hopeful future to the next generation.

In order to fulfill that responsibility, it is necessary to enact the budget and related bills promptly.

I hereby request that the Diet understand the role that the budget for FY2026 and related bills will play in the current Japanese economy and society, 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 policies.