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(Opening remarks)
1. View on the economic situation
2. Economic countermeasures for the Japanese people
3. Mid-term Program on Government Finances
4. Response to international financial issues
5. Policies take precedence over election politics
I will announce economic countermeasures that I have formulated to assist the Japanese people.
Firstly, I will present my views on the current economic situation. The storm of the century is battering the economy at present. My understanding is that this storm, which should be called a "financial disaster", developed in the United States. I hardly need to quote former US Federal Reserve Chairman Alan Greenspan in saying that the financial crisis which originated in the subprime loan problem in the United States is truly a "once-in-a-century" financial crisis.
New business models, typified by what are known as "securitized products", expanded rapidly. However, financial institutions failed to manage the concomitant risks appropriately, causing the financial markets to become dysfunctional.
Nevertheless, Japan's financial system, compared to those of the US and Europe, remains relatively stable. The foundation of Japan is sound. However, the turbulence in the global financial system is certain to affect the real economy of the world and of Japan through the stock and bond markets.
I am convinced that removing the fears among ordinary people concerning their daily lives-that is, ensuring the "security of the Japanese people in their daily lives"-is of utmost importance in this situation. We must neither be daunted by the storm nor merely choose to lie low till the typhoon passes. I formulated the present measures with the foregoing ideas in mind.
The countermeasures can be broadly divided into two areas. The first is things that can be done within Japan. This consists of providing security in people's daily lives and stabilizing the financial sector. I have included the boldest measures conceivable in the present economic countermeasures.
The second is what must be done internationally. I will promote international collaboration for the sake of financial stability.
I will first explain the economic countermeasures to assist the Japanese people. The gist is as given in the handout. The current set of economic countermeasures is for security in people's daily lives-economic countermeasures for the Japanese people.
The main features are speed; unprecedented boldness; focusing on selected areas of emphasis, with no pork-barrel handouts; and, no issuing of deficit-financing bonds.
Next I will explain the main line of thinking during the formulation process. Firstly, I will immediately, beginning with this fiscal year, set about rebuilding the Japanese economy, with the basic view that three years are required for a full recovery. I will promote economic and fiscal policies in the following three stages: in the near term, the emphasis will be on reviving business activity; in the mid-term, rebuilding government finances; and in the mid- to long term, economic growth through reforms.
I stress that the purpose of the present set of economic countermeasures is not merely to create ephemeral demand. We must rather make them generate steady economic growth through the self-sustaining expansion of domestic demand. Their purpose is to transform the nature of the economy so as to enable the latent potential of the Japanese economy to be fulfilled.
Furthermore, from the viewpoint of maintaining fiscal discipline, I will not shift the economic burden lightly to future generations. I will seek to attain the twin goals of economic growth and fiscal health. Based on the above, the resources required for the countermeasures shall not depend on deficit-financing bonds.
I will now introduce the main elements of the countermeasures.
The first is measures related to people's daily lives.
A fixed-sum tax reduction will take the form of stipends and will cover all households. The total scale will be around two trillion yen. The specifics have yet to be worked out, but a simple calculation shows that a four-person household would receive around 60,000 yen.
As for employment, employment insurance fees will be reduced so as to increase the net income receipts of working people. In addition, employing older "freeters" (irregular and part-time or casual employees)-sometimes referred to as the "lost generation"-as regular employees will be encouraged.
Emphasis will also be placed on nursing care and childcare. As for tax cuts on mortgages, I will aim to have the maximum deductible amount raised to the highest levels ever.
The second is financial measures concerning small and mid-sized enterprises (SMEs). As we head towards the end of the calendar year, the cash-flow situation of SMEs will become difficult. Six trillion yen was allocated in the first supplementary budget as the maximum level of emergency credits. However, the international financial situation has since become more serious. In order to make the cash flow of SMEs and micro enterprises more secure, I will personally give instructions to raise this level much higher, to twenty trillion yen.
The emergency lending limit of government-affiliated financial institutions, previously set at three trillion yen, shall be raised to ten trillion yen. The total scale of these measures will thus reach thirty trillion yen.
I will also make possible the immediate depreciation of new-energy and energy-saving facilities-that is, in the same business year as their introduction.
As for the financial sector, I will raise the limit concerning equity participation in financial institutions. Such measures as the extension of reduced taxation at the current rate of 10% on stock dividends shall also be taken.
The third has to do with the regions. Highway tolls will be reduced substantially. On weekends and holidays, tolls will be 1,000 yen or less, regardless of the distance travelled. On weekdays too, daytime tolls will be reduced by 30%.
In addition, in the event of the reallocation of the tax revenues earmarked for road projects to general purposes, one trillion yen will be transferred to the regions.
The following further measures shall be taken. They will be implemented as soon as possible, in sequence. Measures which do not require legislation or budgetary measures shall be launched as soon as preparations are complete.
Next, measures underpinned by the supplementary budget of fiscal year 2008 and related legislation shall be implemented, followed by measures underpinned by the regular budget of fiscal year 2009 and related legislation.
Next, I will discuss the Mid-term Program on Government Finances. Deficit-financing bonds shall not be issued for these economic countermeasures. However, Japan's government finances continue to run a substantial deficit, and yet in the years to come, our social security costs will also increase. The people of Japan feel significant unease regarding this situation. In order to dispel that anxiety, I will summarize and present to the Japanese public by the end of 2008 a Mid-term Program on Government Finances-that is, future principles concerning government revenues and expenditures.
The outline of this is as follows.
During the period of economic recovery, taxes shall be reduced for a limited duration. After the economic situation has improved, fundamental reform of the tax system, including the consumption tax, shall be promptly launched, so as to ensure fiscal discipline as well as social security that enables peace of mind. This shall be implemented in stages until the mid-2010's. At the end of 2008, I will present an Overall Image of Fundamental Reforms concerning the tax system as a whole. To put it briefly, I should like to ask for an increase of the consumption tax after three years, after bold administrative reforms have been carried out and taking into account the economic situation at that time.
The Japan that I am aiming to create is one of mid-level social welfare and mid-level burden-sharing. It is simply impossible to continue having low level of burden-sharing while enjoying social welfare of a mid-level.
Tax increases are unpleasant for everyone. However, we must stop accumulating substantial debt for our children to repay. In order to do so, a tax increase is inevitable.
Naturally, this is premised on undertaking bold administrative reforms and eliminating governmental waste.
Next, I would like to address international financial and economic issues.
First of all, I wish to discuss an international coordination system for the supervision and regulation of financial institutions. Looking at the current financial crisis, which was triggered by the subprime mortgage problem, we can cite the following problems: first, reckless, fraudulent financing provided by lenders; second, a lack of transparency in information on securitized products; third, questions regarding the rating methods employed by credit rating agencies.
In this way, inappropriate practices were seen at every stage regarding securitized products.
Furthermore, the crisis spread throughout the entire world because investors all over the world invested in these securitized products. There is ample room for reflection since supervisory systems overlooked such serious problems despite the fact that financial institutions are an area which intrinsically requires rigorous regulation.
In particular, the current system under which the authorities in each individual country supervise their respective financial institutions is insufficient. At the summit meeting to be convened in Washington on November 15th, I wish to discuss practical mechanisms that would be conducive to international coordination on the supervision and regulation of financial institutions.
The second area I wish to raise is that of credit ratings. Credit rating agencies are a part of the infrastructure which is indispensable for the development of bond markets. However, it cannot be denied that there were grave shortcomings in the credit ratings of securitized products in the case of the subprime mortgage problem. This situation intensified global financial instability.
At the Summit, I intend to discuss what would constitute appropriate regulations on credit rating agencies, which have such influence, as well as the necessity of fostering local credit rating agencies, which would assign ratings to Asian and other locally-issued bonds.
The third topic I would like to raise is that of accounting standards. Is it appropriate, given the tremendous volatility in the financial markets that we are currently seeing, to require that the appraisal of profit or loss be made under all circumstances using the mark-to-market method?
To what extent should the mark-to-market method govern accounting practices? Furthermore, are different valuation methods not appropriate, depending on whether one will sell the security or hold it until maturity? I intend to discuss these issues as the Summit, aiming to achieve international consensus.
These are my views on international financial issues and my reform proposals.
I have thus provided a skeletal framework of economic countermeasures to assist the daily lives of the Japanese people and of responses to international financial problems. These require unprecedented and deft handling at the helm of government, but I will take on these challenges by mobilizing the full powers of the Japanese government.
I thus request the understanding and support of the Japanese people.
[Q&A]
QUESTION: My question is on the provision of stipends -- a pillar of the additional economic package that you unveiled in your announcement. The opposition criticise it as pork-barrel spending, considering among other factors that for the size of its fiscal burden it will have a weak reflationary effect, as was the case with the regional revitalisation coupons introduced in 1999. You have consistently asserted that policy implementation should come before political point-scoring; yet looking at the content of this economic package, some have the impression that these are measures for winning the election rather than for helping the livelihood of the people. What do you think about this criticism?
I have another question, on a second supplementary budget for implementing some of the measures in the package. Are you thinking of submitting it to the current session of the Diet and seeking its passage, even if that entails an extension the Diet session?
PRIME MINISTER: I think you are talking about the criticism that stipends would amount to pork-barrel handouts. I believe the first important point is that these will reach the recipients before the end of the current fiscal year. In addition, these will also be paid to those households that either do not pay or pay lower sums of tax. For these reasons, I see greater benefits [than alternative methods].
Would I submit the requisite budget to the Diet during the current session as a second supplementary budget? That is something that needs to be considered during the course of forthcoming Diet deliberations. At this stage, I have not decided whether to submit the budget to the current extraordinary session of the Diet.
QUESTION: I would like to ask you about the dissolution of the House of Representatives and the timing of the election. Policy implementation is likely to become increasingly difficult with growing resistance from the Democratic Party of Japan (DPJ), which demands an early dissolution of the House. In the Liberal Democratic Party (LDP) too, there are views that policy implementation should be pursued in earnest after gaining a new electoral mandate. In all this when are you going to dissolve the House of Representatives?
PRIME MINISTER: I myself will make a judgment when appropriate on the timing of the dissolution.
QUESTION: A related question. The New Komeito party was also calling for an early dissolution. What sort of discussions did you have today on the matter with Mr. Ota, Chief Representative of New Komeito?
PRIME MINISTER: As you are aware, there are different views on the timing of the dissolution among the members of the New Komeito Party as well as those of the LDP. I shall take into consideration various views in deciding on the timing of the dissolution. I thus had an intimate exchange of views and clearly saw eye to eye with members of New Komeito.
QUESTION: Again a related question. New Komeito was making fully-fledged preparations for the dissolution on the assumption that voting day would be on 30 November. Would differences between yourself and New Komeito over the timing of the election affect the management of the ruling coalition? And were there not any problems with the way communication took place in reaching where things stand now?
PRIME MINISTER: I am not unaware of certain newspapers which wrote amusing accounts on this matter. However, various forms of communication have taken place between me and Mr. Ota, and there is no risk to the stability of our coalition.
QUESTION: I don't think you answered on the dissolution.
PRIME MINISTER: My answer is that I myself will decide the timing.
QUESTION: In the last three years, three prime ministers have succeeded one another without seeking a mandate from the people. You yourself wrote in a contribution to the magazine Bungei Shunju that your first mission would be to ask for the people's electoral verdict. What do you now think about the legitimacy of your government that gives priority to policy implementation over political point-scoring, and above all, the economic countermeasures?
PRIME MINISTER: Well, as you well know, we do not have a presidential system; ours is a parliamentary cabinet system. We manage the country's political life on the basis of a parliamentary cabinet system, which is totally different from a presidential system. There is absolutely no issue concerning legitimacy. I also believe there is a much louder call among the public for policy implementation rather than political point-scoring, for economic countermeasures in particular.
QUESTION: You said you had not decided whether or not to submit a second supplementary budget during the current session of the Diet. If the DPJ offers to cooperate, would you then definitely submit it during the current session?
PRIME MINISTER: That is closely related to the matter of Diet management. Until we can clearly judge whether we will have their cooperation, we cannot answer. I am sure you understand. So at this stage, I cannot say categorically whether or not we will submit a second supplementary budget during the current Diet session.
QUESTION: I would like to ask you about the allocation of one trillion yen to the regions. Currently there is a limited-term subsidy for the development of roads in the regions, through which about 700 billion yen is allocated from the national government's fiscal resources earmarked for road projects. Will this subsidy be discontinued when the national government's tax revenues for road projects are reallocated to general purposes, and would a new system be established to allocate one trillion yen [to the regions]? Or would the current system of allocating 700 billion yen to the regions be maintained while a new system to allocate one trillion yen is set up in addition?
PRIME MINISTER: The details have been decided. But basically one trillion yen will go to the regions.
QUESTION: Concerning the dissolution and the election, you said that the people are calling for the implementation of policy, in particular economic countermeasures, rather than political point-scoring. I wish to confirm whether you are saying that you are not going to dissolve the House of Representatives, at least for the time being.
PRIME MINISTER: I do not know what exactly NHK's [the Nihon Broadcasting Corporation's] definition of "for the time being" is, so I cannot say anything off the cuff. But at least at this stage, it is only natural that the timing of the dissolution will depend on forthcoming developments in the Diet, including whether or not the supplementary budget is passed. In any event, we need to implement the [present economic] policies and allay people's concerns over their daily lives. I believe that is indeed the top priority.
QUESTION: You said we are facing a once-in-a-century crisis. A political vacuum is likely in the United States after the presidential election. Is it acceptable in this situation that a political vacuum is also created in Japan by dissolving the Lower House? Prime Minister Aso, I would like to hear your frank view on this.
PRIME MINISTER: As for the United States, there will be a transition period from 4 November through 20 January, which is a difficult period. This routinely comes once every four years.
The world probably considers it extremely unfortunate if both the United States and Japan, the largest and the second largest economies in the world, were to go through an uncertain period at the same time because of elections. People have in fact made that point to me. It is indeed an important point to consider.
But the most important thing is -- although it really depends on the meaning of "political vacuum" as you use it -- that the executive branch of government will not abruptly disappear even if elections are called [in Japan]. The government will still be in place. Under our parliamentary cabinet system, a political vacuum will not caused by the replacement of thousands of government officials, as in the United States. So I do not immediately think there will be a political vacuum in this country, although definitions are difficult with a subject like this.
(ends)
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