(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 11, 2014

(Introduction)

I am Taro Aso, Minister of Finance and Minister of State for Financial Services.

For starting this meeting of the Committee, I will make a brief address.

(The current situations of Japanese economy and basic fiscal policy)

During its first year, the second Abe Cabinet sought to promptly extricate Japan from deflationary stagnation and to revitalize the economy by strongly promoting an integrated “three arrows” strategy comprised of the “Aggressive Monetary Policy,” “Flexible Fiscal Policy,” and “Growth Strategy for Promoting Investment.” These policies have already taken effect, and the Japanese economy is recovering at a moderate pace. For instance, real GDP has registered five consecutive quarters of positive growth, and commodity prices have remained firm.

The first thing we need to do is to take these movements toward economic recovery and these expectations for an exit from the deflationary stagnation, and link them to a stable growth trajectory. To this end, we will accelerate and enhance the implementation of the Japan Revitalization Strategy, which is the government’s “third arrow” for reviving the Japanese economy. At the same time, the government, business managers and workers will, while continuing to perform their respective roles, work with each other in advancing efforts based on the report of the Government-Labor-Management Meeting for Realizing Virtuous Cycles of the Economy. It is important that this leads to the realization of virtuous economic cycles, that is, linking increases in corporate earnings to higher wages and greater employment and investment, and then through increased spending and investment, stimulate further growth in corporate earnings.

Through these initiatives, we will restore a robust economy, which is also the basis for premium income and tax revenue. In addition, by raising the consumption tax rate, we will secure stable financial resources for social security, and we will build a sustainable social security system to hand down to the next generation.

We will implement measures, not only to alleviate any reactionary impact and to address the risk of an economic downturn when the consumption tax rate is increased in April this year, but also to realize an increase of the economic growth potential and virtuous cycles leading to sustainable growth of the economy. Specifically, we will promptly implement the “Economic Measures for Realization of Virtuous Cycles” and the FY2013 Supplementary Budget, which are based on the Economic Policy Package determined by Cabinet on October 1, 2013. In conjunction with the FY2014 Budget and Tax Reform, we will also make steady progress in initiatives for mitigating the impact, together with measures for pass-through of increased consumption tax.

In order to facilitate the monetary easing currently undertaken by the Bank of Japan, and also in order to continue realizing sustainable economic growth led by the private-sector demand, it is important to maintain the credibility of Japanese public finance. The fiscal situation in Japan, however, has continued to worsen due to such factors as the deflationary stagnation, an aging population and falling birthrate. On top of that, the response to the economic crisis following the collapse of Lehman Brothers has resulted in the situation deteriorating even further in recent years. Whether viewed historically or in comparison with other countries, the situation in Japan is extremely severe. We need to dispel people’s uncertainty for the future by securing the credibility of public finance, thereby maintaining sustained economic growth.

In view of these points, the government has set a fiscal consolidation target to halve the primary deficit of the national and local governments to GDP ratio by FY2015 from the ratio in FY2010 and to achieve a primary surplus by FY2020. In order to steadily achieve these targets, in addition to continuing to increase tax revenue, we will need to continually improve the efficiency of annual expenditure. Based on this approach, and in line with the Medium-Term Fiscal Plan, we will continue to exert our utmost effort both on the expenditure and revenue sides.

(Summary of the FY2014 Budget and the FY2014 Tax Reform)

Next, I would like to outline the FY2014 Budget and the FY2014 Tax Reform.

The FY2014 Budget aims at exiting from deflationary stagnation, achieving economic revitalization and fiscal consolidation at the same time. We have prioritized the budget on such issues as investment for the future which will contribute to strengthening the competitiveness of Japan, and ensuring a sense of safety and security in a daily life protecting the foundations of life.

The FY2014 Budget is also the first budget realizing the Comprehensive Reform of Social Security and Tax. Utilizing the increase in consumption tax revenue, we aim to enhance and maintain social security.

Primary balance expenditure will be 72.612 trillion yen, whereas total expenditures in the general account will be 95.882 trillion yen, including 23.270 trillion yen for national debt service.

With respect to revenues, tax revenues are expected to reach 50.001 trillion yen and other revenues will add 4.631 trillion yen. Government bond issues are 41.250 trillion yen, decreased by 1.601 trillion yen from the initial budget for FY2013.

As a result, primary balance of the general account will be improved by 5.241 trillion yen, which is more than the target enshrined in the Medium-Term Fiscal Plan of approximately 4 trillion yen in both FY2014 and FY2015.

As for the FY2014 Tax Reform, we will implement tax measures aimed at ending deflationary stagnation and revitalizing the economy, as well as comprehensive tax reforms, and tax measures for supporting reconstruction from the Great East Japan Earthquake.

Specifically, with respect to promoting investment in facilities, promoting investment in R&D and to increasing income and consumption, we will implement tax measures that represent a quantum change from the previous policy. Based on these perspectives, we will introduce tax measures for promoting investment in facilities to improve productivity, expand investment promotion tax measures for SMEs, expand measures for the R&D tax credit, enhance tax measures for promoting expansion of income, abolish the special corporate tax for reconstruction one year ahead of schedule, and alleviate taxation on social and entertainment expenses. In addition, we plan to revise the deduction for employment income, adjust uneven local corporation tax, and revise taxation on automobiles.

(Basic concepts on the future of financial administration)

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

To aggressively implement, in a comprehensive approach, the Abe Cabinet’s “three arrows,” which I referred to at the beginning of this speech, it will be important for financial institutions to further exercise their functions as financial intermediaries, and to support the turnaround and growth of business companies as well as revitalization of regional economies. In order to achieve this, we will encourage financial institutions to be proactive in supplying funds, including new loans to small and medium enterprises, and to support their management improvement and strengthening of financial content.

In order to make financial and capital markets of Japan more attractive in total, we will make necessary improvements in regulations regarding crowdfunding, which is a scheme to collect money from a large number of fund providers each of whom contribute a small amount via the internet, disclosure requirement of listed companies, and sale of partnership rights. We will also make necessary improvements in regulations and systems regarding insurance solicitation in order to appropriately deal with the changes in business environment surrounding insurance companies.

In addition, we will make efforts to provide financial sector technical assistance to other Asian countries for their development of financial infrastructures as well as to aggressively contribute to global financial regulatory reform.

That aside, Japan’s financial system as a whole is sound and stable at present, and we will, with strong interest, keep a close watch over the impact of domestic and foreign economic and market developments on Japan’s financial system.

(Key Points of New Bills)

We will ask you to deliberate on four bills related to the Ministry of Finance, which concern the FY2014 budget.

The first and the second bill, in relation to the FY2014 tax reform, is the Bill to Partially Amend the Income Tax Act, etc. and the Bill on Local Corporation Tax, which include measures towards exiting from deflation and for economic recovery.

The third bill is the Bill to Partially Amend the Customs Tariff Act, Act on Interim Measures Concerning Customs, etc.

The fourth bill is the Bill to Partially Amend the Act on Measures Accompanying Accession to the International Development Association.

Also, the bills related to the Financial Services Agency are the Act for Partial Revision of the Financial Instruments and Exchange Act, etc. and the Act for Partial Revision of the Insurance Business Act. The two bills are aimed at improving the legal framework for measures regarding 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)

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

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

(End)