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Speech on Fiscal Policy by Minister of Finance Shiokawa at the 156thSession of the National Diet


Speech on Fiscal Policy byMinister of Finance Shiokawa
 at the 156th Session of the National Diet

January 31, 2003
    Before I request the deliberation of the draft budget forFiscal Year 2003, I would like first to state my fundamental philosophy towardsfiscal policy and other future policies and also give an outline of the draftbudget.
    Amid the rapid economic and social changes at home andabroad, such as the rapid aging of the population resulting from the decline inthe birthrate as well as the globalization of the economy, we intend to tacklethe following challenges steadily and appropriately and to make efforts toachieve structural reform for building a society in which people can livewithout anxiety for the whole their lives.
    What is most important in current economic and fiscalmanagement is to curb deflation. On this point, we made the utmost efforts inthe FY2003 budget, tax reform and so forth, amid the severe fiscal situation.The Government, together with the Bank of Japan, will continue to take a strongand comprehensive approach.
(Fiscal Structural Reform)
    The first challenge is fiscal structural reform.
1. In compiling the FY2003 budget, in order to thoroughly review eachexpenditure item, we first drastically eased the budget request ceilings andthen conducted prioritized and efficient allocation of budget with the ultimateaim of building a vibrant society and economy. Amid anticipated increases inexpenditures, such as an increase in burden due to the aging society, we reducedexpenditures and reviewed costs by using the results of budget implementationinvestigations. We have set the size of general expenditures and general accountexpenditures as a whole at a level lower than that of the FY2002 budget insubstance.
2. Japan is experiencing a fiscal situation of unprecedented severity, withthe government bonds outstanding expected to reach nearly 450 trillion yen atthe end of FY2003. The “Reform and Perspectives,” which was recently decidedby the Cabinet, says that “the goal is to achieve a primary balance surplus inthe early 2010s.” In our medium- and long-term fiscal management, we intend tostrive to achieve this goal.
(Tax Reform)
    The second challenge is tax reform.
1. The FY 2003 tax reform will implement necessary measures, taking intoaccount the current economic and fiscal situation and further utilization ofhousehold assets, as well as providing assistance to the activities ofindustries in new areas.
2. Specifically, we will carry out measures such as the following as apackage: Tax reductions for R&D and focused investment incentives, forimproving the competitiveness of Japanese industries; Integration of inheritanceand gift taxes for encouraging the smooth transfer of assets from the oldergeneration to the younger generation and cuts in tax rates; Reduction andsimplification of taxation of financial transactions and stocks for encouraginga shift from ‘deposits’ to ‘investment’; Cuts in the tax rates ofregistration and license taxes for promoting utilization of land; Abolition of‘special allowance for spouse’ (exceeding the amount of the ‘allowance forspouse’)to simplify personal allowances, etc.; Reduction of the tax-exemptthreshold, etc., to increase people’s trust in the consumption tax and improveits transparency; Review of tobacco and liquor taxes; and other measures
    With respect to the integration of gift and inheritancetaxes, an exemption of 25 million yen will be applied for general gifts and thatof 35 million yen for gifts for the purpose of purchasing residential housing.As a result of the measures discussed thus far, a tax reduction of 1.8 trillionyen (national and local) and revenue neutrality will be achieved over a periodof several years.
3. We will continue to examine various issues such as taxation in this eraof aging population and declining birthrate, the relationship between thecentral government and local governments and so forth.
(Contribution to the Stabilization and Development of the World Economy)
    The third challenge is to contribute to the stabilizationand development of the world economy.
1. We will engage in challenges such as strengthening the internationalfinancial system and development of the economies and societies of developingcountries in cooperation with international organizations, other G7 membercountries, and Asian countries. We will also make more contributions tofinancial stability in Asia.
    As for exchange rates, it is important that they remainstable, reflecting economic fundamentals. We will continue to closely monitorthe developments of exchange rates and take appropriate measures as necessary.
2. We will also actively engage in the WTO New Round of multilateral tradenegotiations and promote economic partnership such as free trade agreements.Specifically, Japan has already started the formal negotiation for theconclusion of a bilateral agreement with Mexico and is also pursuing economicpartnership with South Korea and ASEAN, etc.
    In order to provide further support for least developedcountries, we are prepared to revise the Generalized System of Preference (GSP)scheme in the FY2003 revision of tariff-related laws.
(Outline of the Draft Budget for FY2003)
    Next, I will give an outline of the draft budget forFY2003 that we have submitted to the Diet.
1. First of all, with regard to expenditures, the amount of generalexpenditures totals 47,592.2 billion yen and the amount of general accountexpenditures comes to 81,789.1 billion yen.
    As for the number of regular national public servants, we areaiming to reduce the number of regular staff of administrative organs by 2,136.
2. With regard to the revenue side of the budget, tax revenues are expectedto amount to 41,786 billion yen, incorporating the FY2003 tax reform. Otherrevenues are expected to total 3,558.1 billion yen.
    As a result, the fiscal situation will become severe, withgovernment bond issues amounting to 36,445 billion yen and the bond dependencyrising to 44.6%. We will submit a necessary draft for the specialdeficit-financing bond issues separately to the Diet for deliberation.
3. As for the Fiscal Investment and Loan Program Plan, we have reviewed theprojects and focused on the areas conducive to structural reform in line withthe purpose of the administrative and fiscal reform, while reducing the totalamount of investment and loans under the program. Further, we have respondedappropriately to the demand for necessary funding in view of the currenteconomic and financial circumstances, such as funding for the revival ofcorporations and financing for small and medium-sized enterprises. As a result,the amount of investment and loans under the FILP totals 23,411.5 billion yen,which is a 12.6% decrease from the initial plan for FY2002.
4. My next subject is the major expenditures.
    In relation to social security-related expenditures, witha view to establishing a stable and efficient social security system that can besustained in the future, we will implement an indexation of pension benefits,etc. to the decline of consumer prices in FY2002 and reform the employmentinsurance system.
    With regard to public investment-related expenditures, theoverall amount will be reduced. In order to achieve a vibrant society andeconomy with comfortable, high-quality living environments, we will placeimportance on four categories: “Progress and Utilization of HumanResources,” “Building Attractive Urban Areas and Local Areas,”“Addressing the Aging Society and Declining Birthrate” and “Creating anEnvironmentally-friendly Society.”
    With regard to expenditures for education and science, we arepromoting measures to reform education, such as review of the state subsidy tocompulsory education and enhancement of academic ability, the establishment ofworld-level universities, and advancing strategically prioritized science andtechnology based on grading.
    With regard to national defense-related expenditures, we willaim at an efficient and moderate defense buildup, while coping with theimportant challenges listed in the Medium-Term Defense Force Buildup Program,such as improvement of the ability to dispatch personnel to disaster areas andqualitative enhancement of defense capability.
    With regard to the agriculture, forestry andfisheries-related budget, we are focusing on policies that place importance onconsumers, while paying due respect to the environment conservation function ofthe agriculture, forestry and fisheries industry.
    With regard to economic cooperation, we are placingimportance on strategic and efficient assistance so that Japan can fulfill itsresponsibility adequately and appropriately from the standpoint of internationalcooperation, while reducing the overall size of assistance.
    With regard to expenditures for energy measures, we aresteadily carrying out measures to ensure stable supplies of oil, based on theinternational perspective and to counter the problem of global warming.
    With regard to expenditures for small and medium-sizedenterprises, we are promoting entrepreneurship and innovative businessmanagement, as well as strengthening the basis for securing smooth funding forsuch enterprises.
5. With regard to the comprehensive reforms of national subsidies, local taxallocation, and allocation (including transference) of tax revenue sources, wehave had the proposal reflected in the FY2003 budget as initial achievements.
    First, we promoted the consolidation and rationalizationof national subsidies to local governments in order to reduce the centralgovernment’s involvement and to streamline state and local administration.
    We have also adopted measures for efficient management oflocal finances by dissolving new borrowings by special accounts to offsetshortages in ordinary balances resulting from a thorough review of localexpenditures, while ensuring necessary local tax allocation.
    Moreover, we have increased the local governments’ share ofautomobile tonnage tax revenue by taking into consideration the effect of thereview of national subsidies for the construction and improvement of bridgesundertaken by municipalities.
    We call on local governments to further review theirexpenditures across the board and actively promote rationalization andefficiency in their operations.
    This is the outline of the draft budget for FY2003. Incompiling this budget, we placed importance on establishing a vibrant economyand society, as Japan is experiencing a fiscal situation of unprecedentedseverity, with bond dependency coming to 44.6%. We will promote the structuralreform of expenditures in order to establish a sustainable fiscal structure bydrastically prioritized allocation and thoroughly eliminating waste.
    I hereby request that you deliberate on the draft budgetalong with related bills and promptly give your approval.