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Speech on Fiscal Policy by Minister of Finance Aso at the 189rd Session of the National Diet

January 26, 2015

We have prepared a draft supplementary budget for FY 2014 in response to the "Immediate Economic Measures for Extending Virtuous Cycles to Local Economies" which was recently approved by the Cabinet. Before I request deliberation on it, I would like to provide an outline of the draft supplementary budget.

(The recent economic situation and the Immediate Economic Measures)
First, I would like to describe the recent economic situation and the Immediate Economic Measures.

The Abe administration has implemented the “three arrows strategy,” including bold monetary policy, flexible fiscal policy and a growth strategy that promotes private investment, as an economic policy package called “Abenomics.” This policy program has delivered a series of continuing positive movements. For example, it has contributed to a 22-year high active job openings-to-applicants ratio, large growth in employee compensation and a record-high level of corporate ordinary income. These economic trends suggest that a virtuous cycle of economy – a cycle whereby increased corporate profits are promptly passed on to wage and job increases, which in turn induces expansion of consumption and increases in investment, with further expansion of corporate profits as a result – is emerging.

Although a modest recovery of the economy continues, some weaknesses, especially those related to consumer spending, have been observed. Moreover, the economic recovery remains uneven between regions. As a result, real GDP in the third quarter of 2014 contracted at an annualized rate of 1.9 percent, resulting in two consecutive quarters of negative growth. In order to respond to these current conditions, the Cabinet approved the "Immediate Economic Measures for Extending Virtuous Cycles to Local Economies" on December 27 last year.

The economic measures in this package are targeted at vulnerable areas of the economy and are intended to address such vulnerabilities as soon as possible. With this package, the administration aims to secure the realization of a virtuous economic cycle and deliver the benefits of Abenomics swiftly and broadly to local economies. To achieve this goal, this package has three priorities: (1) stimulate consumption while considering different economic conditions among regions; (2) revitalize local economies facing structural challenges through effective initiatives such as job creation; and (3) accelerate post-disaster recovery and other emergency responses, and reconstruction from the Great East Japan Earthquake.

(Summary of the FY 2014 Supplementary Budget)
Next, I will outline the FY2014 Supplementary Budget submitted to the current session of the Diet for the purpose of implementing the "Immediate Economic Measures for Extending Virtuous Cycles to Local Economies."

With respect to the Immediate Economic Measures, we are scheduled to disburse a total of 3.5059 trillion yen in the general account. In detail, we have allocated 1.1854 trillion yen for expenses related to "Livelihood and Lifestyle Support"; 578.3 billion yen for expenses related to "Revitalization of Local Communities"; 757.8 billion yen for expenses related to "Disaster and Emergency Response"; and 984.4 billion yen as a transfer to the Special Account for Reconstruction from the Great East Japan Earthquake. In addition, we have also allocated 953.8 billion yen as local allocation tax grants, and 446.3 billion yen for other expenses.

In order to fund these expenditures, on the expenditure side of the budget, we plan to decrease the amount of previously approved expenses by 1.7880 trillion yen, and on the revenue side of the budget, in addition to an increase in tax revenue of 1.7250 trillion yen and an increase in non-tax revenue of 114.8 billion yen, we have included a surplus from the previous fiscal year of 2.0353 trillion yen. As the budget revenue exceeds the expenditure for the necessary public projects by 757.1 billion yen, we will utilize this to reduce government bond issues from the perspective of achieving fiscal consolidation.

As a result, the general account budget for FY2014 will increase from the initial budget by 3.1180 trillion yen both for revenues and expenditures, amounting to 99.0003 trillion yen in total.

Necessary supplementary measures are also planned for the special account budget.

Next, with respect to the Fiscal Investment and Loan Program, we have added a total of 111.7 billion yen in view of the Immediate Economic Measures.

(Concluding remarks)
This concludes my explanation of the outline of the draft supplementary budget for FY2014.

The earliest possible passage of the supplementary budget is necessary in order to ensure that Japan will break away from the prolonged deflationary stagnation and to further enhance the positive economic cycle.

I hereby request that the Diet deliberate on this supplementary budget and promptly give its approval.