(Provisional Translation)
Fiscal Policy Speech by Minister of Finance
KiichiMiyazawa
in the 147thSession of the National Diet
January28, 2000
In requesting the deliberation on the draft budget forFY2000, I would like to state my fundamental philosophy towards the futurefiscal and financial policies and give an outline of the draft budget.
(Introduction)
The Japanese economy has been forced to remain stagnantfor a long period of time due to the slump in assets market and the problems ofnon-performing loan, etc. caused by the collapse of the bubble economy. When theeconomy was suffering from the aftermath of the collapse of the bubble economy,there occurred financial system unrest, and the economy posted a negative growthfor five consecutive quarters from the autumn of 1997, the worst record inpostwar history. The economy now seems to have got out of the worst situationthanks to various measures taken to shore up the economy. However, since theeconomy has yet to achieve a sustainable recovery, it is necessary to pass thebaton from public to private demand and put the economy back onto a path towarda full recovery led by private demand through past as well as current fiscalmeasures.
Through such efforts we have to establish various systemssuitable for a new era in order to lead the path of prosperity that we havefollowed after World War II toward the 21st century. To that end, we intend tomake all-out efforts to tackle the following challenges.
(The Current Condition of the Economy and BasicPolicies toward Economic Management)
The first challenge is toachieve a full recovery led by private demand.
- The government has so far done its utmost to implement various measures aimed at economic recovery and financial system stabilization in order to extricate the economy from the extremely difficult conditions and ensure revitalization of the economy. The Japanese economy continues to improve moderately, with influence of various policy measures and of the Asian economic recovery. However, due to the effects of sluggish income caused by corporate restructuring, etc. and the disposition of idle excess capacities still being under way, the momentum for recovery in private demand such as personal consumption and business investment, which is the key to the autonomous recovery of the economy, remains weak and we cannot withdraw fiscal measures to support the economy at this juncture.
- With such recognition, in order to, first of all, implement the various measures incorporated in the Policy Measures for Economic Rebirth, which was adopted in last autumn, we implement promptly the second supplementary budget for FY1999 that was passed in the previous session of the Diet.
As for the FY2000 budget, in view of current economic and financial conditions, necessary and sufficient measures are secured with regard to public works. For example, an amount identical to the FY1999 initial budget, which was compiled with a top priority on promoting economic recovery, has been budgeted. Also, contingencies for public works amounting to 500 billion yen have been budgeted. As regards the financial situation, with the aim of stabilizing the financial system and ensuring depositor protection, we have increased the amount of subsidy bonds held by the Deposit Insurance Corporation from 7 trillion yen to 13 trillion yen and will transfer 4.5 trillion yen to the Special Account for the National Debt Consolidation Fund for possible redemption of additional subsidy bonds. We believe our preparations to tide over the final phase of the financial crisis are complete as we have taken drastic measures to stabilize the financial system so far. I, myself, believe firmly that with the FY2000 budget, necessary measures to put the economy back on a recovery track and stabilize the financial system have been secured. - With regard to the implication of taxation for the economy, the permanent tax reduction for individuals and corporations which have been implemented since the FY1999 tax reform will continue. Furthermore, in the FY2000 tax reform, we will take measures to promote private-sector investments and support small and medium-sized enterprises (SMEs) and venture businesses. The measures include the extension of the period for tax credits for housing loans and the introduction of special taxation of capital gains from stocks of specified SMEs (stocks eligible for "Angel taxation scheme"). In addition, in order to cope with socio-economic changes, we will take necessary measures in areas including pension tax system, corporation tax, and the personal allowance for dependent children aged under 16.
- As a result, the ratio of government bond issues to total government expenditures in the FY2000 budget will increase by 0.5 percentage points to 38.4% from 37.9% in the initial budget for FY1999, and the total long-term debt outstanding of the national and local governments is estimated to reach 645 trillion yen at the end of FY2000, putting Japan's fiscal situation in a critical phase. Under these circumstances, it goes without saying that fiscal structural reform is a challenge that must be overcome. However, an important and necessary step before engaging in such a reform is to make sure that the Japanese economy is getting back onto a path toward a full recovery led by private demand. After the recovery is firmly established, we will promptly review various fiscal and taxation issues and carry out comprehensive measures, bearing in mind the blueprint of the desirable Japanese economy and society in the 21st century.
- With respect to the reform of the Fiscal Investment and Loan Program, we intend to submit a bill to implement the reform to the current session of the Diet. This bill will abolish the compulsory deposit of postal savings and pension reserves, change fund raising in line with the market principles, and establish a framework appropriate for FILP's new functions from FY2001.
(Establishment of Reliable and Robust FinancialSystem)
The second challenge is to establish a reliable and robustfinancial system.
- With regard to the deposit insurance system, the Financial System Council submitted a report in December last year. The report presented the framework of the deposit insurance system after the termination of special measures to fully protect deposits. But late last year, the ruling parties agreed that it is appropriate to postpone the termination of the special measures by one year from the viewpoint that it is necessary to establish a more solid financial system by getting a better grasp of the actual conditions of the management of some small and medium-sized financial institutions and securing the improvement of their management. Based on the report and the agreement among the ruling parties, we intend to submit a bill that amends relevant laws to the current session of the Diet.
- With respect to insurance companies, based on another report by the Financial System Council, we intend to submit a bill concerning demutualization of mutual insurance companies, consolidation of bankruptcy legislation and others, to the current session of the Diet.
- In order to improve the infrastructure for financial services in the 21st century, it is necessary to establish a market where assets and risks are efficiently distributed and to improve the environment for the protection of customers of financial services. From these viewpoints, we will strive for the legislation regarding rules on sales and solicitation of financial products and legislation regarding rules on collective investment schemes during the current session of the Diet.
(Contribution to the Development of the WorldEconomy)
The third challenge is to contribute to the sounddevelopment of the world economy.
- Since the outbreak of the Asian currency crisis, Japan has been contributing to the economic recovery of these countries, such as steady implementation of "The New Initiative to Overcome the Asian Currency Crisis" in cooperation with the countries concerned and international financial institutions. Japan is also implementing various measures based on the report of "the Mission for Revitalization of Asian Economy."
- The economic stability of the Asian economy is vital to the sound development of the world economy. We will continue our efforts to make the recovery trend of the Asian economy solid, secure the prosperity of Asia in the 21st century, and further strengthen cooperation between Asian countries and Japan.
- From this standpoint, the stability of the exchange rates of the currencies in the region is extremely important and to this end, we will strive to further promote the "internationalization of the yen."
- From the standpoint of maintaining and strengthening the multilateral free trade system, Japan will continue its efforts for an early launch of the new WTO round. And in FY2000 tariff revisions, we will conduct revisions of the tariff rates on certain items and introduce a "simplified declaration procedure" to make it possible to release goods before lodgement of a declaration of customs duty.
- We believe that achieving a full recovery led by private demand in Japan will contribute to the materialization of more balanced growth of industrial countries, which was stressed at the recent G7 meeting of finance ministers and central bank governors.
(Outline of the Draft Budget for FY2000)
Next, I will explainthe outline of the draft budget for FY2000 that we have submitted to the Diet.
- The draft FY2000 budget was compiled from the standpoint that we would take all possible measures to put the Japanese economy, which has yet to emerge from severe situation but continues to improve moderately, on track to a full recovery.
- As for expenditures, the amount of general expenditures totals 48.09 trillion yen, a 2.6% increase from the initial budget for FY1999.
As to the regular number of national public servants, we are trying to curb any increases and reduce the regular number of the staff of administrative organs by 4,745.
We are also positively promoting the streamlining and rationalization of subsidies from the standpoint of respecting the independence of local administration and effectively using financial resources.
Also, in view of the current financial situation, we will transfer 4.5 trillion yen to the Special Account for the National Debt Consolidation Fund as financial resources for the redemption of additional subsidy bonds to be held by the Deposit Insurance Corporation.
As a result, the general account expenditures total 84.9871 trillion yen, a 3.8% increase from the initial budget for FY1999. - Next, I will explain the revenue side of the budget.
As for the taxation system, as I have stated earlier, we will take measures to promote private-sector investments and support SMEs and venture businesses.
Government bond issues will increase 1.56 trillion yen from the initial budget for FY1999 to 32.61 trillion yen. As for deficit-financing government bond issues, we will submit a necessary bill separately to the Diet for deliberation. - As for the Fiscal Investment and Loan Program(FILP) plan for FY2000, we have aimed at focused and efficient allotment of funds from the standpoint of continuing to give consideration to the economic conditions, while keeping the reform of the FILP in mind. The general FILP amounts to 37.466 trillion yen, a 4.8% decrease from the initial plan for FY1999. Including the portfolio investment, the total FILP plan amounts to 43.676 trillion yen, a 17.4% decrease from the initial plan for FY1999.
- Next, I will explain the major expenditures.
As for social security-related expenditures, we will strive for the smooth implementation, of the Nursing Care Law and revisions of the medical insurance system from the standpoint of establishing an efficient social security system that will be stably managed toward the future amid the rapidly aging population.
As for public works projects-related expenditures, we will focus on measures and operations designed to cope with policy challenges facing current Japan, such as economic structural reform, environmental measures, responses to the rapid increase in the aged population with less children and advancement of telecommunications, with the aim of establishing a new solid foundation for further development. In implementing such measures, we will strive to secure efficiency and transparency by employing a strict project assessment method utilizing cost-benefit analyses.
As for expenditures on education and science, we are promoting measures, such as those aimed at the improvement of the educational environment, overall improved standards across the board in the field of higher education and academic studies, and the promotion of science and technology focused on creative and basic research, with the aim of establishing a creative and vital nation.
As for national defense-related expenditures, under the Mid-term Defense Build-up Plan, we are aiming at an efficient and moderate defense build-up and to that end, we are striving for increased efficiency and rationalization of expenditures, such as reducing the procurement costs of defense equipment.
As for the agriculture, forestry and fisheries-related budget, based on the new basic law, we will strive for the steady implementation of necessary measures, while concentrating various measurers on those who will be entrusted with the future of Japanese agriculture and stepping up the introduction of the market mechanism into the policy on farm product prices.
As for economic cooperation expenditures, we will further enhance the efficiency and prioritization of assistance through strengthening implementation system, such as the expansion of the assessment system, and increasing visibility of Japanese aid.
As for expenditures for energy measures, we will steadily implement a comprehensive energy policy which will attach importance on measures to counter the problem of global warming.
As for expenditures for SMEs, we are improving measures, with the emphasis placed on assisting the self-help efforts towards creation of new businesses or business innovation, in order to assist SMEs to become more diverse, more independent and more vitalized. - As for local finances, we will take appropriate measures, the part and parcel of which is to secure necessary amounts of local allocation tax grants, in order to maintain sound fiscal management of local public finance, bearing in mind the expected huge revenue shortages. We will request local governments to review their overall expenditures and promote rationalization and efficiency in a positive manner.
(Conclusion)
This is the outline of the draft budget for FY2000.
It is no easy task to deal with the various challenges we arefaced with in this new century while improving the current critical fiscalcondition. However, the government intends to do its utmost to overcome thesechallenges with the understanding and cooperation of the people.
I ask of you to deliberate the draft budget along with therelated bills and promptly give your approval.