Speech on Fiscal Policy by Minister of Finance Nakagawa
at the 170th Session of the National Diet
September 29, 2008
We have prepared a draft supplementary budget for FY2008 in response to the recently adopted Comprehensive Immediate Policy Package. Before I request deliberation on it, I would like to provide an outline of the draft supplementary budget.
(Recent Economic Situation and the Comprehensive Immediate Policy Package)
First, I would like to describe the recent economic situation and the Comprehensive Immediate Policy Package.
Although the Japanese economy has overcome a prolonged slump that followed the collapse of the “bubble economy” and has been achieving sustained recovery, it has shown some weaknesses recently.
When we take an overview of the situation surrounding the Japanese economy, we find that the economies of the entire world are slowing down, including those of the United States, Europe and emerging countries. With the international financial market falling into turmoil and the prices of resources and food surging to historically high levels, the world economic outlook is becoming ever more uncertain.
Under such an economic situation, we understand that the resource and food price hikes have had a substantial impact on small- and medium-sized enterprises (SMEs), which face difficulty in passing on additional costs, and workers, whose wages have not increased sufficiently.
With the aim to address the “pain” and “anxiety” of the people during the phase of transition to a new cost structure, and to make the Japanese economy more robust in the long term, the government adopted the Comprehensive Immediate Policy Package on August 29, 2008.
The first objective of the policy package is to remove people’s anxiety. To this end, steps will be taken to support people’s daily lives and employment, through promoting policies for non-regular workers and other measures, while steps will also be taken to upgrade medical care, pension and long-term care services, such as expanding measures to run the elderly medical care system smoothly and securing the medical care system. In addition, steps will be taken to support child care and education, including focused and selected implementation of the “New Plan to Achieve Zero-Waiting List for Nursery Schools.”
The second objective is to accelerate the transformation to a sustainable society. For this purpose, efforts toward creating a low carbon society will be promoted by accelerating the introduction of energy-saving and new-energy equipment and by other measures, while policies to redesign housing and disaster management, such as accelerating the quakeproof renovation of school buildings and other facilities, will also be promoted. Furthermore, strong agriculture, forestry and fishery sectors will be created by such measures as promoting structural changes to energy- and resource-saving models.
The third objective is to facilitate adaptation to a new cost structure and to boost growth potential. To achieve this, full efforts will be made to ensure the financing of SMEs and micro businesses by implementing projects worth 9 trillion yen in total, including introduction of the emergency guarantee scheme to cope with material price hikes and the expansion of safety-net lending by government-affiliated financial institutions. At the same time, efforts will be made toward vitalizing SMEs and micro businesses through steps including strengthening measures to protect sub-contractors.
With regard to policies concerning reform of the taxation system, including implementation of special tax cuts, a conclusion will be drawn together with the discussion on the fundamental reform of the overall tax system this year.
Also, local governments will be provided with necessary funds to implement the policy package and achieve local revitalization, and with appropriate financial support with respect to the foregone local tax revenue earmarked for road construction.
Outline of the Draft Supplementary Budget for FY2008 (Article 1 of the General Account, Article 1 of the Special Account, and Article 1 of the Budgets of Government Agencies)
Next, I will outline the draft supplementary budget for FY2008 which we have submitted.
The basic idea of the Comprehensive Immediate Policy Package is to distinguish itself from traditional economic stimulus packages by concentrating fiscal resources on measures with the highest necessity under a fiscal consolidation policy. Based on this idea, we formulated the draft supplementary budget with the fundamental principle of maintaining fiscal discipline and avoiding issuing special deficit-financing bonds, after reviewing existing expenditures and curtailing them to the utmost extent.
First, with regard to expenditures, we have allocated a total of 1.8081 trillion yen for the Comprehensive Immediate Policy Package: 351.8 billion yen for “removing people’s anxiety,” 729.6 billion yen for “policies to redesign housing and disaster management,” 188.1 billion yen for “creating a low carbon society and strong agriculture, forestry and fishery sectors,” 446.9 billion yen for “vitalizing SMEs,” and 91.6 billion yen for “supporting local governments.” In addition, while budget surplus funds will be transferred to the special account for the Government Debt Consolidation Fund, existing expenses will be curtailed.
As for revenues, we have included the general account budget surplus (631.9 billion yen) carried over from FY2007, and projected an increase of 37.2 billion yen in non-tax revenues.
In order to make up for the revenues that still fall short, we will additionally issue government bonds of 395 billion yen as an inevitable measure. Such additional issuance will be limited to construction bonds. With this measure, the total amount of government bond issuance for FY2008 will be 25.743 trillion yen, and the bond dependency rate will be 30.6 percent.
As a result of these measures, the total amount of the general account budget for FY2008, including the supplementary measures, will be 84.1255 trillion yen: an increase of 1.0641 trillion yen from the initial budget in both revenues and expenditures.
In relation to these supplementary steps for the general account, we will also take necessary supplementary steps for the special account budgets and the budgets of government-affiliated agencies.
In addition, in order to implement the Comprehensive Immediate Policy Package, we will increase the amount of the Fiscal Investment and Loan Program by 177.8 billion yen in this draft supplementary budget.
This is the outline of the draft supplementary budget for FY2008. I hereby request that you deliberate on the draft supplementary budget and promptly give your approval.