(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, 2015

(Introduction)

I am Taro Aso, 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 key policy directions on fiscal policy, financial administration, and other affairs at this committee.

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

To revitalize the Japanese economy, the Abe Cabinet has been implementing the “three arrows strategy” of its economic policy package in an integrated manner. Under this policy, “virtuous economic cycles” are surely starting to turn, with a 22-year high active job openings-to-applicants ratio and a record-high level of corporate ordinary incomes.

To deliver these benefits of Abenomics swiftly and broadly to local economies, we will promptly and firmly implement the “Immediate Economic Measures for Extending Virtuous Cycles to Local Economies”.

In addition, as an important task for the Abe Cabinet in its third year, we will devote earnest efforts to overcoming the population decline and revitalizing local economies and will encourage each region to form an autonomous, sustainable society by taking advantage of its own characteristics.

Meanwhile, in order to establish virtuous economic cycles, it is important to maintain the trend of wage hikes based on the consensus reached at the Seiroshi Meeting held late last year and to improve productivity and revise the wage system at the same time.

We will also put the Japanese economy securely on the path of growth by boldly executing the growth strategy with an aggressive stance through the enhancement of corporate governance, reform of corporate taxation and abolition of so-called bedrock regulations.

To realize sustainable economic growth led by private demand and to smoothly promote monetary easing by the Bank of Japan, it is essential to maintain fiscal sustainability.

However, Japan’s fiscal condition is very severe, as shown by the accumulation of outstanding public debts to a level double the size of GDP. We must continue to make maximum efforts in terms of both revenue and expenditure.

We have decided to postpone the hike of the consumption tax rate to 10% for one and a half years as a result of taking comprehensive account of the economic condition and other factors. However, we will securely implement the consumption tax hike to 10% in April 2017, without introducing a provision that links the tax hike to the assessment of the economic condition, in order to fulfill our responsibility to pass social security on to future generations and secure the trust of markets and the international community in Japan. We will make every possible effort to ensure appropriate economic management with a resolve to create such a situation.

We will firmly maintain the goal of bringing the primary balance, including the national and local government budgets, into surplus by FY2020 and will formulate a concrete plan for achieving it by the summer of this year. When formulating the plan, we will further strengthen the initiatives so far conducted by the Abe Cabinet and will conduct study mainly on three pillars: a break from deflation coupled with economic revitalization, expenditure reform and revenue reform.

Through these initiatives, we will realize fiscal consolidation compatible with economic revitalization.

(Summary of the FY2015 Budget and the FY2015 Tax Reform)

Next, I will explain the outline of the budget for FY2015 and the tax system revision.

The budget for FY2015, together with the economic measures, the supplementary budget for FY2014 and the tax system revision for FY2015, aims to achieve simultaneous economic revitalization and fiscal consolidation. It vigorously promotes efforts to deal with various challenges faced by Japan, including the revitalization of local economies and support for child care. It also features thorough prioritization and efficiency improvement of expenditures as a result of reviewing expenditures without exception, including a natural increase in social security expenditures. Through these measures, the new issuance amount of JGBs under the budget for FY2015 will fall to the 30-trillion-yen range for the first time since the initial budget for FY2009 and the dependence on public debt issuance will decline to approximately 38%. The budget for FY2015 will also achieve the fiscal consolidation target for the year.

As for the tax reform for FY2015, we will implement tax measures aimed at ending deflationary stagnation and revitalizing the economy, tax measures related to the revitalization of local economies, tax measures that take account of the change in the timing of the consumption tax hike to 10% and international initiatives such as the BEPS project and tax measures for supporting reconstruction from the Great East Japan Earthquake.

Specifically, we will encourage companies to enhance their profit-earning power and make active efforts to raise wages by expanding the tax base and lowering the tax rate as part of a growth-oriented corporate tax reform. Regarding the consumption tax, we have postponed the timing of the tax hike to 10% until April 2017. Moreover, we plan to extend and expand gift tax exemption related to housing acquisition funds and create a tax program to strengthen local business facilities.

(Basic concepts on the future of financial administration)

Next, I would like to elaborate on the current financial administration.

To implement the Abe Cabinet’s “Three Arrows,” which I referred to at the beginning of this speech, in a dynamic and comprehensive manner, it is critical for both direct finance and indirect finance to play appropriate roles as financial intermediaries so that funds are supplied smoothly throughout Japan including the local economies.

To this end, we will encourage financial institutions to furthermore provide finance based on the evaluation of customers’ business potentials without depending excessively on collaterals and guarantees.

Also, given the recent situation with the specially permitted business for qualified institutional investors, in order to assure protection of investors while ensuring the smooth supply of risk money to growth area as well, we will make necessary improvements in regulations regarding the specially permitted business for qualified institutional investors.

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 actively contribute to global financial regulatory reform.

Overall, Japan's financial system as a whole is sound and stable at present, and we will, with vigilance, keep a close watch over the impact of domestic and foreign economic development and market trends on Japan's financial system.

(Key Points of New Bills)

The Bills which we will ask you to deliberate on, related to the Ministry of Finance, are the Bill to Partially Amend the Income Tax Act etc., the Bill to Partially Amend the Customs Law and the Temporary Tariff Measures Law, and the Bill to Partially Amend the Development Bank of Japan Act.

Also, the bill related to the Financial Services Agency is the Bill to Partially Amend the Financial Instruments and Exchange Act.

We will explain the details of these 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 Furukawa and all other members of the Committee.

(End)