[Title] Speech on Fiscal Policy by Minister of Finance Suzuki at the 208th Session of the National Diet

Before requesting deliberation on the budget for FY2022, I would like to state the basic approach underlying the government's fiscal policies and outline the draft budget.

(Current state of the Japanese economy and basic approach to fiscal policies)

The Japanese economy is gradually recovering from the severe situation caused by COVID-19. However, the spread of the Omicron strain on people's lives and the economy continues to be felt. Although the economy is expected to pick up due to various policies and improvements in overseas economies, we need to pay close attention to the downside risks.

Under these circumstances, we will first take all possible measures to counter COVID-19. We also need to overcome the crisis caused by this infection and realize a virtuous circle of growth and distribution towards new capitalism. To this end, we will promptly implement the supplementary budget for FY2021 that was approved earlier. At the same time, it is necessary to steadily implement the FY2022 budget, which was prepared in unison with the supplementary budget as the so-called “16-month budget” and the FY2022 tax reform.

Japan's public finances face the structural challenge of an imbalance between the benefits and burdens of social security as the declining birthrate and an aging population. The public finances are the cornerstone of the nation's credibility. Without lowering the flag of fiscal soundness, we will firmly promote reforms in both expenditure and revenue to achieve the target of a primary balance surplus in FY2025, as stated in the Basic Policy on Economic and Fiscal Management and Reform 2021 and other policies.

(Outline of budget and tax reform for FY2022)

Next, I would like to explain the FY2022 budget and tax reform outline.

As mentioned earlier, the budget for FY2022 was drafted in conjunction with the supplementary budget for FY2021, based on the so-called “16-month budget” concept. While taking all possible measures to counter COVID-19, the budget is designed to realize the new capitalism through a virtuous cycle of growth and distribution.

Specifically, first, we will steadily implement measures to prevent the spread of infection based on the FY2021 supplementary budget. Furthermore, in the FY2022 budget, the government will continue to provide a reserve fund of 5 trillion yen for countermeasures against COVID-19 to prepare for unexpected changes in the situation. Next, as a growth strategy to realize the new capitalism, from the perspective of a science and technology-oriented nation, we will secure a record level of funding to develop science and technology and promote innovation. At the same time, from the perspective of the Digital Garden City Nation concept, support will be provided through grants to promote regional development. In addition, from the perspective of economic security, we will promote research and development. Besides, as a distribution strategy, we will work on measures to improve the treatment of nursing, care, childcare, and early childhood education and promote investment in people.

At the same time, we have been reviewing expenditure in general. We have been continuing our efforts to reform expenditure, including the achievement of the guideline in the Basic Policy on Economic and Fiscal Management and Reform 2021 for general expenditure. We have also improved the quality of our budget by working to correct the negative effects of the single-year budget policy.

The general expenditures are approximately 67.37 trillion yen. The total amount of the general account is approximately 107.6 trillion yen, including approximately 15.88 trillion yen in local allocation tax, grants etc. and approximately 24.34 trillion yen in national debt service.

Revenue from taxes and other income is expected to be approximately 65.24 trillion yen, and other revenue is expected to be approximately 5.44 trillion yen. Government bond issuance is approximately 36.93 trillion yen, which is approximately 6.67 trillion yen less than in the previous year's initial budget.

Next, I would like to explain major expenses.

As for social security-related expenses, we will secure the necessary funds to improve the treatment of workers in the fields of nursing, care, and childcare. The government has made various reform efforts, such as the flexible revision of medical fees and drug prices to reflect market prices. As a result, the budget aligns with the policy to limit actual expenditure within increased expenses due to the aging population.

Education and science promotion expenses will be used to rationalize the number of teachers and staff necessary to promote the subject teacher system in the upper grades of elementary school. Furthermore, from the perspective of becoming a science and technology nation, the government will promote research and development in digital and green technologies and enhance support for improving the treatment of doctoral students.

Concerning local government finances, the total amount of local government general funds will be secured appropriately, reflecting the increase in national and local taxes while significantly reducing the issuance of local government' temporary fiscal stimulus bonds.

According to the Medium-term Defense Force Development Plan, we will steadily strengthen our defense capabilities, including new areas such as space and cyber, while improving procurement efficiency in light of the increasingly tense international situation.

Public works expenditure will be focused on disaster prevention and mitigation and national land resilience while considering the need to strengthen soft measures and improve efficiency through innovative technologies. In addition, we will work on leveling out construction periods and facilitating periodic maintenance through the proactive use of the government's national debt obligations.

In economic assistance, we will focus on ongoing support for the international containment of COVID-19 and support for developing countries, including climate change countermeasures. Official development assistance (ODA) will be secured in the amount necessary for both budget and project volume.

As for measures for SMEs, we will enhance subcontracting transactions and support business succession. Furthermore, we will respond to the current management issues surrounding small and medium-sized enterprises, such as support for productivity improvements.

As for energy expenses, we will promote decarbonization by creating innovations, such as making renewable energy the main power source and promoting carbon recycling. In addition, we are working to develop an energy supply network that is resistant to disasters.

The budget for agriculture, forestry, and fisheries will expand exports of agricultural, forestry, and fishery products and foods and promote productivity improvements in agricultural management and environmental impact reduction. Furthermore, we will work on resource management for the sustainable growth of the forestry and fisheries industries.

Concerning the reconstruction from the Great East Japan Earthquake, we will implement detailed measures according to the stage of recovery in the second recovery and creation period. At the same time, to realize creative reconstruction, the total amount of the special account for reconstruction from the Great East Japan Earthquake for FY2022 is set at approximately 840 billion yen.

In the FY2022 Fiscal Investment and Loan Program, the total amount is set at approximately 18.89 trillion yen to be used to continue taking all possible measures to support businesses affected by COVID-19 and to focus on the realization of a science and technology nation, the promotion of the Digital Garden City Nation concept and economic security, disaster prevention, disaster mitigation, and national land resilience.

As for the government bond management policy, we will continue to make efforts for a stable issuance of government bonds based on close dialogue with the market, while the total issuance of government bonds, including refinancing bonds, remains at an extremely elevated level of about 215 trillion yen.

Concerning the FY2022 tax reforms, we will drastically strengthen tax measures for wage increases by encouraging management that considers various stakeholders and proactive wage increases to realize a virtuous cycle of growth and distribution. Furthermore, we will further promote open innovation through collaboration between startups and existing companies. In addition, we will review the housing loan deduction based on the perspective of achieving carbon neutrality.

(Conclusion)

This concludes my explanation of the basic concept of fiscal policy and outline of the FY2022 budget and tax reform.

After World War II, the Japanese economy recovered from the devastation in the postwar period, achieving rapid economic growth, and Japan overcame two oil crises. In the Heisei era (1989 – 2019), there were huge natural disasters and financial and economic crises. Even now, we must tackle structural issues, such as the declining birthrate and aging population, while facing the severe conditions associated with COVID-19.