31 March 1997

Opening Statement

It is auspicious that the FY1997 budget was passed by the Diet on Friday of last week. I would like to thank the members of both Houses for the comprehensive and passionate debates that they undertook on a wide variety of budgetary issues, as well as to those who specifically worked to draft this budget. Let me express my heartfelt gratitude to everyone who contributed to the passage of the budget for their cooperation.

It has already been fifteen months since I assumed the position of Prime Minister on 11 January 1996, a period which has included a House of Councillors election on 20 October and the launching of the Second Hashimoto Cabinet on 7 November. During my term, I have devoted myself with all my heart to the construction of our national policies.

The incident of the seizure of hostages and occupation of the Residence of the Japanese Ambassador in Peru has truly been a grave situation. On 27 March, the 100th day since the incident began, I spoke with President Alberto Fujimori on the phone and repeated my desire that even greater efforts be made to achieve a peaceful solution as soon as possible. The situation remains extremely difficult and we cannot predict what will happen. However, when I think of the suffering of the hostages held in the Residence, I can only hope that the situation will be resolved without the delay of a single minute or even a single second, and that everyone will be freed safely and the incident will end peacefully. Japan will continue to do whatever it can to assist in this regard.

Since today's press conference was arranged to mark the passage of the budget, let me begin by explaining my fundamental thinking and perspective on the budgetary issues and resolutions, focusing primarily on reform of Japan's fiscal structure. In this great endeavor, I shall request the cooperation and support of all of the people of Japan.

First, I would like to point out that all of the expenditures of the FY1997 budget, excluding payment of principal and interest on past debt, are covered by revenues from taxes that the Government receives from you, the people. This is an initial step towards fiscal structural reform. Yet today we are afflicted with a massive debt that we owe the coming generations. Our national debt amounts to 254 trillion yen outstanding in national bonds alone. As our society ages and birth rates fall, our children and grandchildren will be saddled with a tremendous burden unless we take vigorous steps now to achieve fiscal structural reform.

It was from this perspective that I announced the five principles of fiscal structural reform on 18 March. I am sure that all of you are aware of these principles, but I will briefly enumerate them. First, I have established the year 2003 as the interim target for fiscal structural reform. Second, the three years remaining in this century will be a period of concentrated reform. During this period, we will change our spending in several categories without reserving any "sacred cows," and we will set specific quantitative targets for reducing spending.

Third, the FY1998 budget will contain smaller spending on ordinary expenses than the FY1997 budget. Significant reductions will also be introduced for the Basic Plan for Public Investment and all other long-term plans being pursued by the National Government. Finally, the burden borne by taxpayers, made up of taxes, social insurance premiums and the fiscal deficit, will be kept below 50% of the national income total.

The burden currently borne by taxpayers, counted just as the total of taxes, social security and social insurance premiums, stands at 38.2%, or 45.2% when the fiscal deficit is added in. Thus, in order to prevent this from exceeding 50%, it will be necessary to introduce some significant reductions.

The next step is to define the current targets more specifically and ensure that this effort is reflected in the budgetary requests for FY1998, which must be finalized this summer.

I am genuinely concerned for our future. Every year the number of people eligible to receive pension benefits increases by almost one million. And as everyone is well aware, medical expenses are rapidly rising at the same time. If the system is not changed in some way, social security related expenditures will grow by close to one trillion yen annually. Under these circumstances, all obstacles must be overcome during FY1998 to ensure that we achieve a reduction in ordinary expenditures.

Of course, fiscal structural reform is closely related to five other areas of reform. Through administrative reform, the scale of the central and local governments will be reduced. Responsibility will be transferred from the National Government to local governments, and central ministries and agencies will be transformed into more efficient organizations.

Under economic structural reform, the elimination or relaxation of regulations and the transfer of the responsibilities of the National Government to the private sector will lead to a system which cultivates the vigor of the private sector. Last week's Deregulation Action Program redefined the fundamental approach to regulation, from one in which the National Government checks every single thing in advance and requires various approvals and confirmations, to one in which it merely conducts follow-up monitoring.

In the area of reform of the financial system, efforts are being made to promote new market entry, to eliminate product restrictions and to create a transparent system. Meanwhile, structural reform of social security must include a fundamental revision of the drug tariff standards system and further reforms to the health insurance system.

Pension will be recalculated in FY1999, and revisions will be made based on the results.

In education as well, reforms are proceeding from a broad perspective, with an emphasis on nurturing creativity and the spirit of challenge.

In point of fact, a number of reforms are already underway. The spread of mobile telephone and PHS services is directly linked to deregulation in the information and telecommunications sector. Competition and flexible pricing have also been introduced for public utilities such as electric power.

In the transportation sector, especially the taxi industry, the fundamental approach has been revised and restrictions on supply and demand are being abandoned. This will facilitate new market entry and flexibility in fare structures. Of course, liberalization has advanced in the area of personnel placement agencies and temporary placement firms, while foreign exchange transactions in dollars or other currencies will be liberalized. In this sense, I believe that reforms are moving in the right direction. We must lend our weight to the further acceleration of this process. In order to accomplish this, the six reforms being pursued by the National Government need to be promoted in an integrated and comprehensive manner.

The recent decision by the Liberal Democratic Party to move ahead with the reform of special public corporations is of considerable significance in defining the specifics of administrative reform.

I would like to take the opportunity here to review the principles underlying these six reforms. In light of increasing global integration and the aging population and falling birth rate that Japan faces, the fundamental principles that Japan must adhere to as it approaches the 21st century are: the capacity to respond to crises, freedom of choice and coexistence. Everything can be understood through these three principles.

As we consider specific ways to undertake administrative reform, the question must therefore be how to proceed within the framework of these three principles.

First is the issue of responding quickly and properly to crises, as reflected in the first principle, "the capacity to respond to crises." I believe that it is necessary in this regard to enhance the crisis management functions of the Prime Minister's Residence.

Second, in order to achieve freedom of choice, public administration should be dedicated to supporting the vitality of the private sector and to maintaining transparency, responsibility and propriety. Toward this end, we must act based on the principle of individual responsibility to create an environment in which private-sector vitality and individual talent can realize their full potential. Other important issues include how to improve the abilities of the central ministries and agencies to formulate and implement their plans and how far to proceed with information disclosure and clarification of rules.

Third is coexistence. This principle implies an emphasis on local communities based on the spirit of mutual assistance, on the development of the nation as a whole and on harmonization with the international community. We must determine how to enable the Government to deal appropriately with the wide range of issues it must address in order to achieve these goals.

From this perspective, we must strive to eliminate the barriers rising out of the overcompartmentalized vertical structures of our central ministries and agencies. We can thereby make Kasumigaseki into a place which can effectively respond to the international situation as well.

However, it will be no easy task to change practices and procedures which have become deeply entrenched in Japanese society over many years. Those who have depended on fiscal outlays from the National Government will naturally be impacted, and those protected by existing rules will face competition. Yet if we do not reform our brittle system into a flexible structure which can meet the needs of our time, I see no future for Japan. Shall we remain tied to the ease of subsidies and government protection, merely maintaining the status quo and going quietly down the path of retreat? Or shall we instead shoulder our temporary burden and work to build a society which has a future bursting with new vitality? We must face this great decision. As for myself, I choose the latter path.

With a population of 120 million, despite its small size and lack of resources, Japan has overcome many difficulties and achieved historic progress. In each era, we have applied our intellect, perseverance and diligence to build a brighter future for ourselves, our children and our grandchildren. This is why today we must proceed with reform.

It is with these thoughts in mind that I am calling on you to undertake these various reforms. In reaching for this goal, I call upon our people to understand and cooperate in this endeavor.

I would like to continue just a little bit longer so that I may talk about another important topic: the Okinawa issue.

I consider the fulfillment of our obligations under the Japan-U.S. Security Treaty to be a matter of the utmost importance, not only for the sake of maintaining the relationship between Japan and the United States, which is Japan's most important bilateral relationship, but for the very existence of Japan as a nation.

It is against this background that we now approach the expiration of leases for certain sites used by United States military forces in Okinawa Prefecture. Given the vital importance of the situation, I am determined that we must at all costs avoid a situation where the titles to use those lands disappear after 15 May.

I am fully aware that there is opposition among some of the people of Okinawa Prefecture on this issue. This stems from the fact that even though Okinawa represents just 0.6% of Japan's total national land area, 75% of the U.S. military facilities and areas are concentrated there. It is a fact that we have not fully appreciated the suffering and the burden which the people of Okinawa have had to bear for so many years as a result of this situation. That is why such circumstances have arisen. Since last year, I have sought to ameliorate this situation, even if only a little, and I have faithfully done my best to realize an improvement.

The Chief Cabinet Secretary and other members of the Cabinet have all dealt with this issue directly. Leases have already been finalized with more than 29,000 persons, but unfortunately, there are still some who have not granted their consent. Given these circumstances, and fully cognizant of the criticism that I must face, I have decided that the least disruptive option is a partial revision to the Law on Special Measures for Land for U.S. Forces. I hope that you will recognize and understand that fulfilling the obligations of the Japan-U.S. Security Treaty is a grave issue related to Japan's national security, and lies at the very heart of Japan's existence as a nation.

Thank you for your attention.