February 28, 2013
Before requesting deliberation on the draft budget for FY 2013, I would like to state the basic philosophy underlying the government’s fiscal policies and provide an outline of the draft budget.
(The current situations of Japanese economy and basic fiscal policy)
The Japanese economy has been in a state of deflation for a long time, with dramatic structural changes in domestic and international economic environments since the 1990's, including the intensification of global competitions.
We have observed a discouraging expectation for growth and a chronic forecast of deflation due to the continuous decrease in wages and the flat growth in consumption and capital investments. We have been unable to wipe out the sense of stagnation spreading across the nation that is caused by people's anxiety about the future. After World War II, Japan is the only country in the world that has gone through such a deflationary recession.
Deflation discourages investments in the future, deteriorates Japan and is a deep-rooted problem that has debilitated the Japanese economy. Keeping our previous policy is not the way to break the status quo and overcome the deflationary recession. Thus, the second Abe Administration will promote the revitalization of the economy by implementing, in a unified and consistent manner, a “three-pronged strategy,” as an aggressive policy package that represents a quantum change from the previous policy, consisting of an “aggressive monetary policy,” a “flexible fiscal policy,” and a “growth strategy that promotes private investment.”
The second Abe Administration has promptly taken decisive and appropriate political measures; for example, it has established the “Emergency Economic Measures for the Revitalization of the Japanese Economy,” has drawn up the FY 2012 Supplementary Budget, and has released a "joint statement" with the Bank of Japan. All of these measures were taken within one month of the Abe administration’s governance.
These economic policies of the second Abe Administration drew a lot of attention from various nations at the G20 Finance Ministers and Central Bank Governors' Meeting held in Moscow on February 15th and 16th. I explained thoroughly that the new administration had been making steady efforts to revitalize the Japanese economy, and if the Japanese economy regained its energy, it would have a good influence on the world economy.
The Japanese economy showed weakness in the latter half of last year due to the slowdown of the world economy and further deterioration of the economy was a concern. However, we also see some encouraging signs; for example, stock prices have started to rise recently. From now on as well, we will continue to closely monitor the developments in exchange markets and ensure that these trends lead to the sound revitalization of the economy through private investment and the expansion of employment and income.
Therefore, we will promptly implement the FY 2012 Supplementary Budget which was recently approved. I also think that it is necessary to steadily execute the FY 2013 Budget that is unified with the FY 2012 Supplementary Budget under the concept of a “15-month budget” and the FY 2013 Tax Reform. In addition, we are planning to establish an aggressive growth strategy by around the middle of this year. The strategy will include bold regulatory/structural reforms to help reinvent the economic structure, while aiming to strengthen the competitiveness and growth potential of the Japanese economy. We will continue to make efforts to ensure all necessary policy measures.
On the contrary, we cannot afford to take fiscal stimuli forever. Facing the extremely difficult situations in the Japanese public finance, it is important to secure the credibility of Japanese fiscal policy. While continuously promoting the Comprehensive Reform of the Social Security and the Tax, we will investigate the path toward fiscal consolidation and revitalization of the Japanese Economy with the fiscal consolidation targets to halve the primary balance deficit ratio to GDP of central and local governments by FY 2015 from that in FY 2010, and to achieve a primary balance surplus of central and local governments by FY 2020.
(Summary of the FY 2013 Budget and the FY 2013 Tax Reform)
Next, I would like to outline the FY 2013 Budget and the FY 2013 Tax Reform.
With respect to the FY 2013 budget, we will prioritize “Measures for Post-quake Reconstruction and Disaster Management,” “Wealth Creation through Growth,” and “Security in Life and Regional Revitalization,” as we did for the FY 2012 Supplementary Budget for Emergency Economic Measures. We will also increase defense budget for people's security as well as our budget for public works, including measures against aged facilities and infrastructure, for the protection of people's lives and life styles. On the other hand, we plan to make the budget more efficient by adjusting and revising social welfare and the salaries of local government employees. With these efforts, the budget has been drafted to steadily improve the primary balance and to take the first step towards the goal of fiscal consolidation and fiscal recovery, ensuring that tax revenues exceed the income generated by government bonds for the first time in four years.
The primary balance expenditure will be 70.37 trillion yen, and the general account of the budget as a whole will amount to 92.6115 trillion yen, including 22.2415 trillion yen of national debt service costs.
With respect to revenues, tax revenues are expected to reach 43.096 trillion yen and, other revenues will add 4.0535 trillion yen. The government bonds and special government bonds for pension will amount to 42.851 trillion yen and 2.611 trillion yen respectively.
Next, I will outline our key expenditures.
As for the social security expenditure, we plan to revise the livelihood protection system, including the livelihood-assistance criteria and the adjustment of medical assistance in order to limit the weight of the public’s burden. We also plan to promote support for the poor and unemployed, so they become independent, and will promote learning supports for children whose families need livelihood protection in order to provide them with a more secure daily life. Furthermore, we plan to make efforts on the enhancement and improvement of measures against incurable diseases and cancers, and on measures supporting child care, such as an increase in capacity at day-care centers so that so many children are not lingering on a waiting list. In addition, we plan to work on the comprehensive promotion of innovations in medical-related areas, in order to realize the creation of wealth through growth.
As for expenditures on education and science, we will prioritize measures that aim at improving student academic performance and providing school environment where children can study without feeling the anxiety of bullying. We will also increase scholarships and other measures to alleviate the financial burden of households, facilitate university reform, and increase the number of school building with adequate earthquake protection. On the science and technology front, we will improve the research environment by providing research administrators and other staff more stable employment, improve their quality, reform research grants, and strengthen business and academic collaboration.
As for local government finance, in addition to making every effort to support the people and local governments damaged by the earthquake, we will make efforts, including requests for salary cuts to local government officials, in order to promptly and appropriately solve local issues in terms of local expenditures. We will also plan to secure an appropriate amount of local general funds, such as local taxes and local allocation taxes that are required for the stable fiscal management of local governments. Through these measures, we will take care of local governments as much as possible.
As for defense related expenditures, in response to an increasingly difficult security environment around Japan, we plan to improve warning and surveillance activities to secure the safety of the surrounding sea and air space, to strengthen our defense posture on off-shore islands, and to enhance readiness in response to various contingencies. As a result, virtually for the first time in eleven years, there will be an increase in the expenditures as compared with the previous fiscal year.
As for public-work-related expenditures, we plan to make efforts to enhance social infrastructure. This is truly required in order to prevent against the dangers of an aged infrastructure. We will also support disaster prevention/mitigation in order to protect people's lives and lifestyles while still keeping our investments prioritized and efficient.
As for economic cooperation expenditures, we plan to secure the total amount of ODA operations while revising costs, for example, we will promote focusing on areas that will also help Japan to grow.
As for expenditures related to small and medium-sized enterprises, we plan to stimulate activity among small and medium-sized enterprises, through efforts to increase the minimum wage and measures that will enable easy financing. We will also focus on supporting research and development while expanding support for small-sized enterprises.
As for energy expenditures, we plan to focus on the promotion on nuclear regulation and disaster mitigation, to support the introduction of renewable energy and the promotion of energy saving, and to secure our rights to natural resources overseas.
As for the budget related to agriculture, forestry and fisheries, in order to promote "Aggressive Agriculture, Forestry and Fishing," we plan to accelerate farmland consolidation for the sake of responsible people, to secure and educate new farmers, to promote migration to the sixth industry and to enhance agricultural infrastructure.
As for the public-safety budget, we plan to make efforts to further enhance the infrastructure of police activity and to improve treatment in penal institutions and within society to prevent repeat offences, in order to ensure people are secure in their daily lives.
We accurately include personnel costs for government officials in the budget. For example, we have included the salary cut according to the Revision and Special Temporary Measures on Remuneration Law, which calls for a reduction in the retirement allowance, and for better workforce management.
With regard to the recovery from the earthquake, we have revised the so-called reconstruction fund frame, which covers up to FY 2015. We plan to allocate approximately 6 trillion yen, including capital gains from sales of stocks in the Japan Post Holdings, to adjust operating costs when they exceed 19 trillion yen in FY 2013 and thereafter in an effort to wipe out anxieties about the reconstruction fund among the citizens who live in affected areas. In addition, with regard to expenditures from the FY 2013 Special Account for Reconstruction from the Great East Japan Earthquake, we allocated 3.7178 trillion yen to help cover the costs of the reconstruction from the Great East Japan Earthquake, 66.2 billion yen for reconstruction bonds, and 600 billion yen for the Reserved Fund for Reconstruction Acceleration and Fukushima Revitalization. As for revenues, we expect 1.224 trillion yen from the Special Tax for Reconstruction, 1.2462 trillion yen from provisions from the general account, 11.2 billion yen from other revenues, and 1.9026 trillion yen from the government bonds for reconstruction.
In accord with the “Emergency Economic Measures for The Revitalization of the Japanese Economy” and following the FY 2012 first supplementary budget, the FILP plan for FY 2013 would supply long-term risk money as an encouragement for projects and would actively accommodate to awaken private investment and to support for small and medium enterprises improving management and for facilitating the expansion of Japanese enterprises in the overseas market. The total amount of the plan is 18.3896 trillion yen.
Although the total issuance amount of JGBs (Japanese Government Bonds) for FY 2013, including refunding bonds, is planned to be 170.5452 trillion yen, and will be lower than that for FY 2012, both the total issuance amount and the outstanding amount of JGBs remain at an extremely high level. We will remain committed to maintaining our fiscal discipline to secure market confidence and will soundly implement our debt management policy reflecting market needs and trends in government bond issuances, based on close dialogue with the market.
As for the FY 2013 Tax Reform, while taking into account the current economic situation, we will take necessary measures, including tax measure for the creation of wealth through growth and the steady implementation of the Comprehensive Reform of Social Security and Taxes, as well as tax measure to support reconstruction from the Great East Japan Earthquake, and measures to facilitate smooth and appropriate tax payments.
Specifically, we plan the introduction of special measures for the promotion of domestic investments in production facilities and special measures for the promotion of wage distribution, the expansion of the tax system for R&D spending, and the revision of the tax system for the succession of businesses, the top rate of personal income tax, and the basic deduction and tax structure of inheritance taxes, etc.
This concludes my explanation of the government’s basic approach to fiscal management and the outline of the draft budget for FY 2013.
The earliest possible passage of the budget is necessary in order to overcome the prolonged deflation accompanied by the yen’s appreciation and to revitalize the economy.
I hereby request that the Diet deliberate on the budget and promptly give its approval.
Japan is not the only nation facing problems such as the intensification of global competition, or an aging population and falling birthrates. The Japanese government is aiming to overcome deflationary recession, and foreign countries are also showing much interest in Japanese economic policy. As a thought leader, Japan must overcome deflationary recession and present an example of its solutions to the world. I will make all necessary efforts to solve various problems in order to restore a robust Japanese economy.
I sincerely ask for the understanding and cooperation of all the people of Japan.