(Provisional translation)

Policy Statement by Taro Aso, Minister of Finance and Minister of State for Financial Services, at the Committee on Financial Affairs of the House of Councillors

March 19, 2013

(Introduction)

I, Taro Aso, have been appointed to serve as Minister of Finance and Minister of State for Financial Services.

In my recent speech on fiscal policy, I stated my views on future fiscal policy and other affairs. I will present once again my basic concepts on fiscal policy, financial administration, and other affairs at this committee.

(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.

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.

(Basic concepts on financial administration)

Next, I would like to make a few remarks on the current financial administration.

Japan’s financial system as a whole is sound and stable. However, we will, with strong interest, keep a close watch over the impact that domestic and foreign economic and market developments may have on Japan’s financial system.

In order to overcome the deflationary recession and to revitalize the economy, it is important that financial institutions support the turnaround and growth of businesses as well as revitalize regional economies by further exercising financial intermediary function.

We will continue to encourage financial institutions to modify the terms of the loans and to ensure the smooth provision of funds even after the expiry of the Act on Temporary Measures to Facilitate Financing for SMEs(small and medium-size enterprises), etc. at the end of March this year. At the same time, we will support the improvement of the business of borrowers in various situations through measures such as establishing the Regional Economy Vitalization Corporation of Japan. We will also make efforts to raise awareness of these policies.

In addition, we will develop the necessary legal framework to ensure the stability of, restore the credibility of, and strengthen the functions of the financial and capital markets and the financial industry in Japan in light of various challenges rising from the recent global financial crisis. This will include the response to financial crises originating from market disruption, the measures against insider trading related to the public offerings, and the relaxation of the restriction on the holding of voting rights by banks, etc.

(Key Points of New Bills)

We will ask you to deliberate on three bills related to the Ministry of Finance, two of which concern the fiscal 2013 budget and the other one of which concerns another matter.

The first bill, in relation to the FY 2013 tax reform, is the Bill to Partially Amend the Income Tax Act, etc., which would revise the top rate of personal income tax.

The second bill is the Bill to Partially Amend the Customs Tariff Law, etc., which includes extension of the effective period of temporary tariff rates and measures, etc.

The third bill is the Bill to Abolish the Act on the Commemorative Organization for the Japan World Exposition ’70, Independent Administrative Agency.

And the bill in relation to the Financial Services Agency is the Amendment Bill of Financial Instruments and Exchange Act, etc., which is aimed at putting in place the legal framework related to financial administration.

We will explain the details of those bills later, so I hereby ask you to deliberate on these matters and give your approval.

(Conclusion)

In this speech, I have stated some of my ideas relating to fiscal policy, financial administration and other affairs.

I am determined to continue, with your support, to do my best in policy management.

I would appreciate the understanding and cooperation of Chairman Fujita and all the other members of this Committee.

(End)