Press Conference by Prime Minister Naoto Kan
CABINET PUBLIC RELATIONS SECRETARY (MODERATOR): We shall now begin the press conference by Prime Minister Naoto Kan. We will begin with an opening statement from the Prime Minister. Prime Minister, please.
Here at the start of a new Cabinet and the closing of the ordinary session of the Diet, I am very pleased to have the opportunity to convey my thoughts to the public in this way. The Kan government was inaugurated on 8 June, and on 16 June the ordinary session of the Diet came to a close. As you know, former Prime Minister Hatoyama resigned as a way of taking responsibility for the issues of "politics and money" and [the relocation of] Futenma [Air Station].
As someone who served in the Hatoyama Cabinet in positions supporting the Prime Minister as Deputy Prime Minister and Finance Minister, I feel a strong sense of responsibility for not having been able to support then-Prime Minister Hatoyama adequately.
Yet at the same time, former Prime Minister Hatoyama wanted to see us return to the starting point of the historic change of government and begin anew. He expressed this wish in a number of ways and through this new government I intend to restore the trust of the public while resolutely following through on what needs to be done while valuing his wishes.
While I have already stated the aspirations of this Cabinet in both my policy speech to the Diet and in my answers to Diet questions, I should like to reiterate the fundamentals. I believe that over the last two decades, especially the time since the bubble economy collapsed, Japan has found itself unable to move forward both economically and socially and caught in an impasse.
We will extricate the country from this impasse and make Japan dynamic once more. I consider this to be paramount as the direction and measures that my Cabinet must pursue.
As I stated in my policy speech to the Diet, to achieve this we must bring about a strong economy, robust public finances, and a strong social security system as an integrated whole, under strong political leadership.
To restate this simply, to bring forth a strong economy, we took a Cabinet Decision on a New Growth Strategy at a Cabinet meeting on 18 June, after the close of the Diet session. This Strategy was compiled by listening thoroughly to the views of various ministries and agencies, and indeed views from across the entire spectrum of society, in the roughly half a year since we first presented the Basic Policies to the public on 30 December last year.
The most prominent feature of the Strategy is that its policies have been devised from a "problem-solving" approach. For environmental issues, we propose "green innovation"; for the issues of medical treatment and nursing care and child-rearing, there is "life innovation"; to foster Asian economic growth, we will forge relations in which such growth can be achieved working together with Japan. We will also create new demand in the regions and the field of tourism. These are the contents of the Strategy, with "science and technology" and "employment and human resources" supporting these areas. We will achieve more than three per cent nominal growth and more than two per cent real growth on average during the period from until fiscal 2020. We have also indicated our intention to reduce the unemployment rate to between three and four per cent. We have made available the contents [of this New Growth Strategy] in substantial detail and I very much encourage people who are interested in this to view it on the Internet or elsewhere.
In order to support such economic growth, it is necessary to have robust public finances. In Japan's current state, as many of you are aware, the ratio of outstanding public debt to GDP exceeds 180 per cent. Is it really possible to increase debt beyond this level? Reference to the Greek situation hardly needs to be made in saying that when public finances collapse, the lives of many people, a large part of the social security system, and numerous other aspects of society collapse along with it. In that sense, it goes without saying that robust public finances are a major element indispensable for both growth and social security.
In order to build robust public finances, the first thing we must do is reduce waste. Recently, there have been some comments suggesting that we are relaxing our efforts to curb waste, but nothing could be further from the truth. As proof of this, if I may call it that, I have given the most forceful minister in my Cabinet the remit of reviewing government programmes, whose purpose is precisely to eliminate waste. I have made Renho the minister responsible for the reviews, and have made [DPJ] Policy Research Committee Chief [Koichiro] Gemba the minister responsible for cutting personnel costs of national civil servants. Meanwhile, [the proposal to] reduce the number of Diet members by 80 in the House of Representatives and by 40 in the House of Councillors will mainly require inter-party discussions, so I am having [DPJ] Secretary General [Yukio] Edano take on this issue in particular. So if anything, we are only now entering the main phase of waste reduction. We must tackle this matter with such enthusiasm.
I think it goes without saying that economic growth is necessary to build robust public finances. I will avoid discussing the details to avoid repeating what I said earlier, but to achieve this we will implement the Growth Strategy without fail.
In addition to this, I consider reform of the tax system to be necessary. The basic direction for the rebuilding of public finances is laid out in considerable detail within the [DPJ] Manifesto that has already been distributed to you [in the media].
First of all, as one of the principles guiding fiscal outlays, we will adhere to the "pay-as-you-go" rule, which requires that the resources for new policies must be secured either by cuts to an existing budget or an increase in revenues [other than the issuance of government debt].
We will also make every possible effort so that the amount of deficit-financing bonds to be issued in fiscal 2011 shall not exceed the amount to be issued in fiscal 2010. Beyond this we will make use of the review of government programmes to ensure a further reduction of waste. We also stated in the Manifesto that we would seek to launch consultations transcending party lines on a fundamental reform of the tax system, including that of the consumption tax, with a view to reaching a final conclusion at an early date.
Over the medium term, regarding the primary balance, by 2015 we will reduce the ratio of the primary deficit to GDP to less than half of the ratio of fiscal 2010. We will also achieve a primary surplus by fiscal 2020.
After fiscal 2021, we will lower the ratio of long-term outstanding debt to GDP in a stable manner. This orientation is laid out clearly in our Manifesto.
I would like to start discussions on the consumption tax in earnest after the House of Councillors election. At that time, as I have already mentioned, I should like to take up the proposal from the LDP of a consumption tax rate of ten per cent as one major point of reference. To offset the regressive nature of the consumption tax, I intend also to discuss thoroughly such methods as instituting multiple tax rates or tax refunds.
The Diet session has just concluded, while the G8 and G20 summits, in which I will be taking part for the first time, will be held shortly in Canada. As Finance Minister I attended G7 and G20 meetings a number of times. In these meetings naturally I expect the foremost topic to be the rebuilding of government finances. How will we overcome the current situation which is most serious in Europe? Since this is having a major impact on the global economy, I expect it to be a key agenda item.
At these summits I will actively explain Japan's approach that I stated earlier in my remarks here today, that here is a means of reconciling growth and the rebuilding of public finances, and that this is the way forward that Japan aims to pursue. I hope that this would be useful to other countries.
Besides the plenary sessions, I consider the meetings with individual leaders also to be extremely important. Since taking office I have already had talks on the phone with several leaders, including President Obama of the US and Premier Wen Jiabao of China. Yet I will have the first opportunity to meet them directly at the summits in Canada.
First of all, with President Obama, I will confirm once more that the Japan-US alliance is the cornerstone of Japanese diplomacy, as I confirmed during our telephone conversation. I also intend to have an exchange of views on Japan-US relations from a broader perspective and enhance our relationship of trust on a personal level as well.
Japan is a nation of the Pacific Ocean, hence a maritime nation, while also being a country of Asia. The United States also attaches great importance to the Pacific Ocean and to Asia as well. Our countries will work together towards the peace and stability of Asia and the Pacific region and by extension the world. I would be gratified if this meeting enables us to reinforce the relation of trust between Japan and the US from this viewpoint.
I had the occasion to meet President Hu Jintao several times before becoming Prime Minister, but I look forward to confirming with him once more that we each value the mutually beneficial relationship based on common strategic interests between our two countries.
This will be my initial meeting with President Medvedev of Russia. Former Prime Minister Hatoyama expended much personal effort on the various issues between Japan and Russia, the most difficult of which is the territorial issue. Since it would be my first meeting, I am hoping as a first step to foster a firm personal relationship of trust [with the Russian President].
I will be approaching the G8 and G20 meetings in this way, as a first step in forging solid relations between these countries and my government as well as Japan as a whole. With this I conclude my opening remarks.
Now please raise your hands. Mr Nakamura.
REPORTER: I'm Mr Nakamura of the Mainichi Shimbun. You mentioned the [forthcoming G8 and G20] summits in your remarks just now. I would like to ask you about the Japan-US summit meeting [to be held at that time]. Japan-US relations became quite strained with regard to the issue of relocating the US military's Futenma Air Station under former Prime Minister Hatoyama. I would like to know what kind of message you seek to convey during this upcoming bilateral summit regarding the relocation issue.
PRIME MINISTER NAOTO KAN: First of all, as I already stated recently in both my answers to Diet questions and my policy speech to the Diet, I intend to handle this issue solidly in line with the agreement concluded under then-Prime Minister Hatoyama. At the same time, the government will work to reduce the burden borne by Okinawa as stated in the [related] Cabinet Decision, and we may also have the United States government cooperating towards that end. This is the fundamental stance and position from which I will be approaching this issue.
REPORTER: I'm Mr Ogata of the Tokyo Broadcasting System (TBS). Prime Minister, you touched on reform of the tax system in your opening statement. On the matter of raising the consumption tax after the next House of Representatives election, as for the new tax rate, you said that you would treat the ten per cent proposed by the LDP as one reference. Would it be correct to regard this as a pledge by the DPJ? In addition, some concern regarding your remarks has emerged from within the DPJ, that this matter will affect the House of Councillors election. Mr Kamei, President of the People's New Party, has also indicated that leaving the coalition is a possibility once the [DPJ's] orientation on an increase in the consumption tax is formally finalised. How do you intend to garner understanding within your own party and also from the PNP?
PRIME MINISTER NAOTO KAN: First of all, what I said was that I hoped to launch at an early time discussions on this issue that transcend party lines. When this happens, I intend to use the ten per cent tax rate proposed by the LDP as a point of reference. That was what I said. You may indeed regard that statement itself as a pledge, but again, as stated in this Manifesto, we are hoping to begin discussions in this overall direction. Naturally, we will be making such efforts after the House of Councillors election.
That said, if you are wondering if we will therefore do nothing until that time, as I said at the previous press conference, the DPJ as a party does intend to consolidate its own ideas on this issue within fiscal 2010. Therefore, if an incorrect message - that we will raise the consumption tax soon after this election is over - is being communicated to the public, then that is completely wrong. It is after the House of Councillors election has been held that we hope to launch the debate on this issue in earnest. If you want to have me speak in terms of pledges, then yes, you may most certainly regard that as a pledge.
I have heard that various opinions are being voiced within the PNP, but when it comes to each party's election Manifesto, each party tends to emphasise its own individuality, as has been the case in the past. For example, the PNP has made it clear that it is opposed to allowing separate surnames for married couples and various other issues. So with regard to the [consumption tax] issue as well, I think that having different positions before an election and leaving the government coalition are somewhat different matters.
Mr Nishiyama sitting over there, please.
REPORTER: I'm Mr Nishiyama of the Asahi Shimbun. This ties in to the previous question, but the divergence of views [between the DPJ and] the PNP has come to the fore over taxes, a most fundamental political issue. Under such circumstances, do you have any intention of forming after the House of Councillors election a new coalition or cooperative relationship with a group of political parties that have indicated that they approve of raising the consumption tax?
In your opening statement you placed emphasis on the issue of public finances. Do you consider the foremost point of contention in the House of Councillors election to be various parties' stances on public finances?
PRIME MINISTER NAOTO KAN: First, regarding your initial question, as I already stated previously, I intend to call for discussions from now that transcend party lines. But as for whether or not we can get everyone to agree, all of that will begin after the House of Councillors election, so if you ask me right now about some matter quite a way into the future, I don't think it is very appropriate for me to answer.
You asked me about whether I will make public finances as the main area of contention. What I have been saying most emphatically is that we must pursue a strong economy, robust public finances and a strong social security system as an integrated whole. Therefore I am not of the opinion that as long as we take care of rebuilding only public finances in some manner, all is well.
For example, if we were to raise the consumption tax and devote [the additional receipts] to repaying the national debt, this would be a deflationary policy. Instead we will seek to achieve growth while also reinforcing the social security system and making our public finances sound. I believe that the integrated promotion of these three objectives will be a major means for making Japan dynamic once more. Consequently, the foremost theme, or indeed pledge, that we will put forth is the promotion of these three areas in an integrated way.
REPORTER: I am Shoko Egawa, a freelance journalist. Just now you spoke of returning to the starting point of the change of government. The [DPJ] Manifesto for the most recent House of Representatives election clearly stated making the process of interrogation process [by the public authorities] "visible" to prevent false criminal charges.
However, this disappeared from the Manifesto for the House of Councillors election. Please explain why this disappeared and also how the Kan government will deal with this issue.
PRIME MINISTER NAOTO KAN: The Manifesto for the forthcoming elections states that we will continue to pursue those matters in last year's Manifesto that we should continue to pursue, while amending those areas in need of amending, including matters of phraseology.
I myself have not gone through each item in the Manifesto, but it is my understanding that items with no particular changes to them are not necessarily included [again in this year's Manifesto]. So it is not necessarily the case that our thinking on this matter has changed.
Mr Funatsu, in this section here.
REPORTER: I'm Mr Funatsu with the Sankei Shimbun. Concerning the debate on the consumption tax that you discussed just now, from our perspective, we feel that this mention of the consumption tax came out of the blue, as your policy speech to the Diet contained no mention of the consumption tax. It was after the Diet session had ended, during your presentation of the Manifesto that the words "consumption tax" suddenly appeared. This seemed as if you deliberately avoided a debate in the Diet. What do you have to say to this?
PRIME MINISTER NAOTO KAN: First of all, the fact that the consumption tax would be examined is stated in the Outline of the Tax System and of the government's draft budget for fiscal 2010 [announced] this past December, when then-Minister of Finance [Hirohisa] Fujii was chairing the Tax Commission. After that, I became the Minister of Finance and during my tenure as chair of the Tax Commission, I advanced discussions, mainly by experts, regarding the income tax, corporate tax, and consumption tax, as I wanted them in particular to be debated exhaustively.
Regarding this Manifesto, I don't think there was much difference [in the timing of its release] compared to that of the LDP Manifesto. However, we settled on the expressions that I mentioned earlier as a result of a process of coordination within the party that continued until just before the Manifesto was announced. Considering that process, I don't believe that the consumption tax appeared "suddenly" by any means. As for my own remarks, it was in speaking in accordance with the Manifesto that I mentioned this matter.
REPORTER: I am Mr Dickie of the Financial Times. You stated that the consumption tax will not rise immediately after the election. What is the earliest timing at which you envision it increasing?
Also, it appears in public opinion surveys that quite a few people among the electorate are opposed to an increase in the consumption tax rate. To what degree are you worried about this opposition [to a tax rate increase] among voters?
PRIME MINISTER NAOTO KAN: As Mr Gemba, the Chairman of the [DPJ] Policy Research Committee himself also said in televised debates and in other fora, this of course depends on how the non-partisan consultations on this matter turn out. Furthermore, in order to mitigate the regressive nature [of the consumption tax], we need to introduce multiple tax rates then it would become necessary to introduce a system of invoices. Should we choose to introduce tax refunds, we would then need to introduce [taxpayer ID] numbers. We have already begun considering [a system of such] numbers and so on, but a period of two to three years would ultimately be necessary generally speaking to design and then implement [such a system]. So, with that in mind, I should think that even at the earliest, it... well, I don't know; I don't think it is particularly desirable to specify a timeframe for this. But I suppose that it would take at least two or three years, or possibly a little longer.
I expect there will be considerable resistance from ministries and agencies to the idea of relocating national fiscal resources and authority to the regions; how do you plan to implement reforms?
PRIME MINISTER: Essentially, we will continue in the same direction and with the same efforts as the Hatoyama government with regard to regional sovereignty, giving the matter exactly the same degree of importance.
There are various ways of describing this matter. I myself have often spoken in terms of the Meiji Restoration, when the centralised Meiji government was created in a complete break from the extremely decentralised system in which power was divided between the shogunate and the feudal domains. At the time, there were external factors making such changes inevitable. Today, though, Japan is a quite mature state, and I personally believe that in a sense we ought to revert to the shogunate-domain system, or rather move control over many matters to the regions.
At the same time, as we debate this topic, there are often concerns about specific issues. If we ask regional authorities to take responsibility for nurseries, for example, will they be able to guarantee the national minimum standards in every single nursery? I have encountered a number of cases like this myself recently.
In that sense, essentially our efforts will not change. As part of these efforts, I want to carry out a major debate on this topic, including on issues such as the one I just mentioned. I understand that we are due to produce an interim report on this issue at the Cabinet meeting tomorrow.
PRIME MINISTER: In two days' time I will visit Okinawa to attend the annual memorial service to commemorate the fallen in the prefecture. Governor [Hirokazu] Nakaima was kind enough to visit me the other day here at my office, so we have had the opportunity to discuss the issue - in what you might call an "exchange of opinions".
I have only spoken with President Obama by telephone, but essentially there is no change in our position: we intend to adhere to the Japan-US agreement. Based on that premise, I believe that we need to make a real start on discussions [with the other parties concerned], particularly with the people of Okinawa. I regard my recent meeting with Governor Nakaima and my visit to Okinawa on 23 June as the beginning of this discussion process.
I am well aware the agreement states that experts will reach a conclusion, or rather that discussions will be concluded by the end of August.
But this is not an issue on which all discussion should be closed once a decision is reached by this deadline. The schedule of the "two-plus-two" meeting is already more or less agreed, but again, I do not intend to treat this as an occasion after which all further discussion would be precluded.
When you are building a house, for example, there may be various plans at first. Even after you have settled on a plan, when it comes to how the house is actually built you obviously need to obtain the understanding of various people, not least the people who now live close by. In that sense, while we will adhere to the Japan-US agreement as an agreement, I want to have thorough discussions on how we implement it - with the United States and with the people of Okinawa.
If I may add a few words: Besides the issue of relocating the Futenma base, there are a number of other questions on which an agreement has been reached in discussions to date or which are under review, such as the return of bases south of Kadena, or the transfer of a portion of the U.S. Marines to Guam. I will proceed prudently, fully conscious of the fact that the relocation of Futenma is an extremely difficult issue, and at the same time and in parallel with this, I will move ahead to make progress on the question of reducing the burden on the people of Okinawa.
Therefore, my question is this: In your Manifesto, there is no longer any mention of making the process of interrogation [by the public authorities] "visible", and no reference to "Internet strategy" or the "work-life balance". What aspects of this manifesto are unique to your government? What aspects of it should we regard as being marked by "Kan colour", so to speak? I'd like to know what areas of policy mean the most to you personally.
PRIME MINISTER: As I noted earlier, the fact that certain things have not been included in the new Manifesto does not mean that they have all been removed from our policies. This is just as I have said.
There is a point I wanted to stress in particular in the new Manifesto - and this is something I have consistently said. I have given some thought personally to the will of the nation's people that gave rise to the power behind last year's change of government. Of course, I believe [last year's] Manifesto was another major element.
Underpinning even this, though, is the fact that Japan's economy and society have been at an impasse over the 20 years since the collapse of the bubble economy. The number of suicides has risen above 30,000 per year and is not coming back down. I am a member of the postwar baby-boom generation, for whom it was normal to start with a monthly salary of around 35,000 yen when getting one's first job, and seeing that rise steadily. Today's young people, though, are not assured of these raises, and in the case of non-permanent employees their jobs may suddenly be cut. All these things produce a feeling among many people that there is something wrong about Japanese society, that it faces an impasse. At one point this feeling generated the energy which gave birth to the [Junichiro] Koizumi government, but the Koizumi government, too, was ultimately unable meaningfully to break out of this impasse which Japan has now faced for 20 years. In the election last autumn, such energy also gave birth to the DPJ government. This is my understanding of the situation.
Responding to the voice of the people is the most important task facing my government. We must do precisely what is written on the cover [of the new Manifesto] and set about "restoring vitality to Japan". What must be done in order to restore vitality to Japan? First are the economy, public finances and the social security system. With strong political leadership, we will bring about a strong economy, robust public finances and a strong social security system. These issues are what we are presenting to the people of Japan in our Manifesto and pledging to pursue.
Also, with regard to your message of rebuilding the nation's finances and achieving economic growth at the same time [in Japan], to be delivered at the upcoming G20 meeting, do you intend to indicate a clear direction for raising the consumption tax as an international pledge as well?
PRIME MINISTER: As I said here today, I should certainly like to gain the understanding of the people regarding the reality we face, which lies behind the debate over the consumption tax. I am certainly not saying that raising taxes or the consumption tax is a good thing. But today we are using deficit-financing bonds, not tax revenues, to cover much of the costs associated with social security. As a result, we have an outstanding fiscal deficit exceeding 180 percent of GDP.
Each year, in the same way, we issue deficit-financing bonds, and some construction bonds as well, but is this truly sustainable? If someone were to guarantee that we could continue this for the next 100 years, then this route would be a viable option. But what happens when we can no longer continue this? The example of Greece shows that the first thing to happen [in a fiscal crisis] is a reduction in welfare, and in some cases a lay-off of workers or lower pay. I am saying that we must consider how to rebuild robust public finances in order to prevent these from happening.
If people have a mistaken view of what I am saying - that we want this tax rise to enable the purchase of a lot of new things, or to spend the money for various uses - I want to set this straight. Already, right now, if we look for instance at the general provisions of the budget, we see that the consumption tax was originally conceived to pay for welfare costs associated with the elderly population. The actual costs amount to 17 trillion yen [per year]. However, the national portion of consumption tax revenues [at the present rate] comes only to some 7 trillion yen. This means that the difference of 10 trillion yen is in practice covered each year by deficit-financing bonds. What I am asking is this: what should be done when we can no longer continue along these lines?
I therefore hope first of all to discuss this issue with everyone who shares the same understanding of the present situation. As one point for discussion, let us take the 10 percent tax rate proposed by the LDP. This is my thinking.
Next, with respect to an actual increase in the consumption tax, you stated that this would take place two or three years from now. Please let us know whether you intend to take this matter to the public in an election before carrying out the increase.
The distribution of fiscal resources in the traditional budget formulation process has shown a considerable tendency to be guided by different factors: what certain powerful politicians were asking for, or requests from certain groups, or the need to protect organisations providing amakudari [golden parachuting] jobs. For the next budget, though, my cabinet will focus primarily on economic growth. While of course other factors will not be totally excluded, growth will be the central pillar as we work on formulating the budget.
As a matter of basic principle, I believe that when major tax reforms are to be introduced, it is necessary that the public be given an opportunity to pass their judgement at the stage when the reform proposals have been put together.
PRIME MINISTER: Thank you very much.