(Provisional Translation)

Press Conference by Prime Minister Ryutaro Hashimoto on the Final Report of the Conference on Fiscal Structural Reform

3 June 1997

Opening Statement

I would like to begin today by making a statement on the Promotive Measures for Fiscal Structural Reform which were compiled by the Conference on Fiscal Structural Reform.

This conference began in January, and thanks to the focused discussions of those participating over the last five months, we were able to agree upon a set of measures today, measures decided by the Cabinet just moments ago. As the Prime Minister and Chairman of this Conference, I am privileged to be able to report on those measures now.

The reason I have to make such a statement is, needless to say, that the environment surrounding Japan has changed dramatically. The total fertility rate has fallen to 1.42, causing the number of children for each household to decrease tremendously.

On the other hand, it is a pleasing fact that our elderly population is on the rise. This is evident from the change in the number of Japanese 100 years or older. When these statistics were first compiled in 1963, Japan had only 153 people who were over 100 years old, but on last year's Respect for the Aged Day, there were 7,373 people over 100 years old. As this figure indicates, we are already in an aging society.

On the economic front, Japan faces a period of great competition in the progress of internationalization. This is why we have to carry out economic structural reform.

Let me now turn to the fiscal situation, which describes the framework of the national and local government. At the end of FY1997, total long-term debt will reach 476 trillion yen, threatening to close in on the gross domestic product of 515 trillion yen. As you are already well aware, there have been several reports that predict the collapse of the Japanese economy in the 21st century if Japan fails to review the structure of fiscal expenditure in areas such as social security, public investment and education. When we consider the future of our children and grandchildren, we recognize that we cannot afford to maintain our current patterns of expenditure.

This means, first of all, that the deficit structure must be changed thoroughly through a comprehensive review of all expenditures without allowing for any sacred areas. As we reduce future expenditures, there will be certain sectors subject to major reductions, as well as certain areas in which it will be wise for us to expand allocations for the future, such as science and technology. Unless we also set out to change the structural reform in such a manner, we will not be able to open the way to a dynamic 21st century.

Bearing these issues in mind, key members of the government came together at the Conference on Fiscal Structural Reform and have conducted in-depth discussions unrestricted by conventional frameworks.

The Promotive Measures for Fiscal Structural Reform that we have compiled today set concrete budgetary cuts and restraints, based on a budgetary allocation in concrete amounts, for the principal areas of expenditure such as social security, public investment and education which decisively modulate the allocation of these expenditures. This is something that has never been done before.

By enforcing these concrete expenditure reform and cutback policies as planned, we will be able to achieve below-zero growth in general expenditure for the next fiscal year, compared to expenditure in this fiscal year. At the same time, we will lower the deficit to no more than three percent of gross domestic product by FY2003. I feel these measures will finally enable us to get back on the right track toward our fiscal consolidation target.

Achieving these goals will require special understanding and support from the Japanese people. Let me briefly address the issues.

The first issue is social security. We are stepping up the reform of the social security system as one of six reforms. Since social security system reform is also necessary from a fiscal viewpoint, we clearly spell out our aim to build a social security system that can be stably managed. As the first step in such reform, in terms of medical care, the Diet is currently deliberating on legal revisions necessary for reform. From FY1998, various reforms, including a fundamental review of the system of standards on pharmaceutical prices, will be tackled head-on.

We also face difficult challenges with respect to the pension system. If we are to sustain the current level of benefits, with the number of children decreasing and the number of elderly increasing, our young people will be forced to bear extremely severe insurance costs. Therefore, we must address the following questions. From what age should people start receiving their pensions? How large should the benefits be? We are already planning to recalculate the figures in FY1999.

The second issue is public investment. In recent years, we have made substantial supplementary expenditures for the purpose of stimulating economic recovery. We are aiming to lower public investment spending to a level almost commensurate with the national economy's level prior to the start of these supplementary expenditures. To this end, we are extending the period of the Basic Plan for Public Investment by three years and, from the perspective of the initial 10-year term, reducing the scale of the program's investments from 600 trillion yen to about 470 trillion yen. The period of the long-term program for public works will also be extended and the scale of investment for the original period will be substantially reduced.

In addition, we must prioritize our allocations of the public works budget. From the viewpoint of expediting economic structural reform, for example, we want to set budgetary allocations so that we are setting priorities and focusing on measures that promote economic structural reform, especially efficiency in distribution. The actual size of the public investment budget will be lowered each fiscal year during the intensive reform period starting from FY1998, when the ceiling will be set at a level lower than the budget for FY1997 by no more than 7 percent.

As for cutbacks in construction costs related to public works, as you are all aware the concerned Cabinet ministers have already agreed to aim at reductions of no less than 10 percent over the three-year period beginning in FY1997, and are already taking steps in that direction.

The third issue is defense-related expenditure. Based on the perspective of our national security, economic and fiscal situations, the 25.15 trillion yen Midterm Defense Build-up Plan will be reviewed this year with a view to restraining defense spending over the next three years. This review will include a cutback of 920 billion yen equivalent to 10 percent of equipment costs for the remainder of the plan. Furthermore, during this intensive reform period, defense spending will be limited to no more than the amount of defense budget allocated in the previous year.

The fourth issue is in the area of official development assistance (ODA). As the world's top ODA donor nation, Japan has continually increased the level of its assistance. Now, with a shift in emphasis from quantity to quality, we are planning to reduce the level of the ODA budget each fiscal year during the three-year intensive reform period beginning in FY1998. In FY1998, in particular, the budget ceiling will be set at a level less than the FY1997 budget by no more than 10 percent. In making these cutbacks, we will ensure the smooth execution of our current ODA commitments by improving the quality of that ODA, prioritizing and improving efficiency in budget allocations, and by utilizing financial resources from the private sector. But it is obvious that Japan will continue to strive for efficient implementation of its ODA and will do everything possible to avoid undermining its spirit of international contribution.

The fifth and final issue concerns the budget for agriculture, forestry and fisheries. The period of measures concerning the agreement on agriculture under the Uruguay Round, especially in the area of agricultural and rural development projects, will be extended for two years, and the content of these projects will be reviewed in order to make contributions through the establishment of agricultural management responsive to the new international environment and by tapping unique regional characteristics. The total project budget of 6.01 trillion yen is currently allocated so that approximately 60 percent goes to agricultural projects and rural development projects, with the remaining 40 percent going to other projects. This will be revised to establish a ratio of approximately 50 percent to 50 percent. In addition to reviewing the content of projects, during the budget formulation process we will examine the handling of the budget of measures related to the agreement on agriculture under the Uruguay Round. I have conveyed this myself to this conference.

Here, I have briefly outlined the major points. After we investigate the direction of future fiscal structural reform, measures regarding other matters will be made known to you.

Together, we must reflect on measures for economic recovery. In the past, we have mobilized fiscal resources to cope with the recession. In the future, however, we cannot easily rely on such measures. We must actively promote deregulation and other economic structural reforms in order to achieve stable growth over the medium term centered on private-sector demand. It is through such action that we aim to achieve true stable economic growth.

All of these measures of fiscal structural reform are accompanied by extremely severe pain. It is a tough reform, but I hope from my heart that the nation understands this situation, and that the pain will be shared. This is, in fact, a very difficult choice I have made in requesting you to share this burden.

With Japanese society aging at a pace unprecedented anywhere else in the world, if we leave the fiscal structure in its present state and invite further expansion of the fiscal deficit, the economy and welfare of the Japanese people in the 21st century will be destined for failure. Under these conditions, we must take every possible step and devote all efforts toward the realization of vitalized and prosperous lives for the Japanese people. This is our responsibility to our children and our grandchildren. It is with this in mind that we have grappled with structural reforms.

To overcome the ordeal of this fiscal structural reform is also our responsibility for the 21st century. From the bottom of my heart, I sincerely ask for your understanding and cooperation.