Press Conference by Taro ASO, Prime Minister
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PRIME MINISTER TARO ASO: I decided to hold this press conference, admittedly at short notice, as I wished to speak to the public on a particular topic. That topic is "emergency measures to defend people's daily lives".
The United States' financial crisis has begun to affect the real economy at an abnormal pace. So far, the government has taken countermeasures in the form of the first supplementary budget (of fiscal 2008) and subsequent measures to counter difficulties in people's daily lives, giving top priority to providing security in people's daily lives and financial stability.
However, even after these efforts, the economy has been worsening at unexpected speed. As you are already aware, in the stock market today, share prices fell and the yen appreciated considerably. Therefore, we are determined to take the following bold countermeasures in the form of the second supplementary budget (of fiscal 2008) and the principal fiscal 2009 budget.
Employment and the cash-flow of companies will be given top priority, so as to defend people's daily lives as we approach the end of the calendar year. The scale of these countermeasures will consist of, first, a fiscal response of 10 trillion yen. This includes a tax reduction totalling one trillion yen per average fiscal year consisting of inter alia a tax cut for housing and capital investment.
Second, as a financial countermeasure, a maximum level of insurance and credit reaching 13 trillion yen.
The government, for its part, shall make all possible efforts to remove the public's anxiousness over daily life, and enable Japan to be the first, at least among developed countries, to put this recession behind it.
We must first move quickly to save employment. In particular, what must be addressed in all haste before the end of the calendar year-not the end of the fiscal year, but the end of the calendar year-is the housing problem facing those whose (fixed-term) contracts were not renewed and those who were laid off. There are people without any place to live if they are forced out of company housing. We request company owners to allow such people to keep their accommodation. In return, subsidies will later be provided to company owners.
People will be given accommodation in the 13,000 employment-promotion housing units. In addition, credit will be provided for meeting the cost to enter new housing.
In addition, as countermeasures against the cancellation of tentative job offers, the government will give thorough guidance, including by announcing the names of companies which have made such cancellations.
In order to provide job opportunities in the regions to workers who are non-regular employees, we will create a fund that, together with the "Measures to counter difficulties in people's daily lives" announced previously, will total an unprecedented 400 billion yen.
In fiscal 2009, we will undertake a reduction of unemployment insurance premiums and a review of the benefit levels, measures to maintain the jobs of non-regular workers and others, and new forms of assistance for those seeking re-employment.
These will amount to an additional spending of one trillion yen.
Furthermore, tax revenues allocated to local governments will be increased in fiscal 2009. This will enable the regions to implement job-creating businesses and other policies independently, as suited to their local conditions.
Second, a reserve budget for emergency economic responses will be created within the fiscal 2009 budget.
As is publicly known, in the "Basic Principles on Budget Formulation" decided by the Cabinet a few days ago, it was laid out that in light of the rapid changes in the global economic and financial situation, bold responses will be made, depending on the situation, in an agile and flexible manner. We will create this reserve budget to provide for unforeseen, novel situations.
Possible areas of use include employment, finance for small and medium enterprises (SMEs) and social infrastructure development.
The third countermeasure is on the financial markets and against cash-flow problems. At this year-end, I am aware of many who work at small and medium-sized companies that are concerned about their cash flow situation. First, the government has allocated in the first supplementary budget (of fiscal 2008) a total of 9 trillion yen, consisting of emergency credit guarantees of up to 6 trillion yen, and 3 trillion yen in safety-net loans by government-affiliated financial institutions. Recently, guarantees for a total of around 100 billion yen are being extended daily. Coverage for over 4 trillion yen remains available. There are about 30 business days left-the 4 trillion yen is for this period. So there is a fully sufficient level till the year-end.
In addition, (an amendment to) the Act on Special Measures for Strengthening Financial Functions was fortunately passed in the Diet today. As announced before, based on this legislation, countermeasures concerning the lenders, i.e. the maximum level of the government's total equity participation (in financial institutions) will be increased by 10 trillion yen, from the present level of 2 trillion yen, to 12 trillion yen. As a result, it will further foster an environment in which financial institutions can provide finance to regional economies and SMEs so that a credit contraction and forced loan repayments do not occur.
Combined with an increase in the maximum credit guarantee level, which is a countermeasure on the borrowing side, we intend to make countermeasures for financing micro, small and mid-sized enterprises totally sufficient through countermeasures on the lending side.
As for cash-flow measures for large and second-tier companies, we will conduct emergency response operations that make use of government finance. Second-tier companies whose cash-flow situation has temporarily deteriorated will receive help from the Development Bank of Japan (DBJ) and The Shoko Chukin Bank.
Looking at short-term promissory notes issued by companies, or so-called commercial paper (CP), the environment for issuance has deteriorated. As a result companies' cash-flow has become difficult.
Therefore, a scheme to purchase CP will be prepared by utilising emergency response operations of the DBJ and other institutions. As an emergency response operation, credits up to a limit of 3 trillion yen will be made available before the end of the current fiscal year.
The government also hopes that the Bank of Japan will implement measures to provide ample liquidity to the market.
Financial institutions will be asked to give special consideration to corporate finance at the end of the current calendar and business years.
I will next refer to measures to address the housing and property markets. In these markets, financial contraction is particularly serious, even among healthy businesses. In addition to so-called emergency response operations for real estate businesses via government finance, the Japan Housing Finance Agency (JHFA) will help housing and real estate business operators to secure finance. Limited-term financing by the JHFA will be started before the end of the calendar year.
I hope to make it easier to purchase homes through the reforms to the tax system during the next fiscal year by introducing the largest-ever tax reduction on housing loans, and by creating a tax cut in cases where housing is bought by using one's own funds or capital resources.
I have presented the foregoing to the leaders responsible for the relevant policy areas in the government and the ruling coalition, and have asked Mr Kaoru Yosano, Minister of State, who is present here, to synthesise the work to be done. The government and the ruling coalition will speed up its work on budget formulation and present the entire picture before the end of the calendar year.
The current global recession is said to be on a once-in-a-century scale. I believe that Japan too is unable to remain on the sidelines or escape from this great tsunami-like occurrence. But it can minimise the damage by taking the right measures at an early stage.
So, now I shall talk about carrying out these countermeasures. In order to do so, the second supplementary budget (of fiscal 2008) and related legislation, tax reforms, as well as the regular fiscal 2009 budget all need to be passed at an early date and implemented seamlessly. Therefore, although exceptional, I am going to convene the regular session of the Diet on 5 January in order to have deliberations conducted on these matters.
Mr Ozawa, President of the Democratic Party of Japan, promised at the recent debate between party leaders as elsewhere that he would cooperate in the deliberations so as to reach an early conclusion. I hereby request once more that he cooperate on the passing of these budgets and related legislation as soon as possible.
Finally, I would like to refer to the "mid-term programme on social security, tax and fiscal policy". In order to mobilize fiscal spending in a bold manner, fiscal responsibility over the mid-term also has to be shown clearly. And because the state of fiscal responsibility is demonstrated, bold fiscal outlays become possible. This is the very starting point and the sense of pride of responsible political parties.
Recently I said that I should like to ask for a rise in the consumption tax rate in three years' time, after bold administrative reforms have been implemented and taking into account the economic situation at that point. My position on this remains totally unchanged.
As a precondition for this, I believe that bold measures to stimulate the economy on the one hand, and preparations for increasing the burden through the consumption tax in order to enhance the safety of the social security system on the other, are required.
From fiscal 2011 I hope to implement a fundamental reform of the tax system, including the consumption tax, within the parameters of the ruling coalition's Main Outline of Reforms to the Tax System, giving due regard to the economic situation.
To make this possible, I have instructed Ministers Yosano and Nakagawa to begin necessary work within the government. I am aware that various criticisms will emerge. Notwithstanding, I am confident that in the end I will be able to earn the necessary understanding from (members of) responsible political parties. I intend to pursue the goal of enhancing the assurance provided by social security without evading the challenge and by being honest. I hereby request further understanding by members of the public.
QUESTION: My question is on the consumption tax. You said your position has remained unchanged concerning raising the consumption tax rate in three years' time giving due regard to the economic situation. You also said that this will be done within the parameters of the ruling coalition's Main Outline of Reforms to the Tax System. Now, the said outline which was decided today reads "by the mid-2010s", but it did not clearly mention when the tax hike would take place. Are you still going to clarify the timing in the government's "mid-term programme on social security, tax and fiscal policy" to be compiled later, and how do you plan to persuade the ruling parties?
As for the timing, I shall pass my own judgment.
Another question is on the financial sources needed for these measures. What would be the sources for the funds, including reserve funds from the special accounts?
Now, as we see a major decline in revenues from corporate taxes, it is becoming highly likely that the principal fiscal 2008 budget will require some trimming. The starting point for the principal fiscal 2009 budget will therefore be very low, and we should make a careful consideration thinking of various possibilities for the future.
So, that is the purpose of the reserve budget. I am sure the people have different thoughts, but given unforeseeable situations it would at least to be reassuring to have this sort of reserve budget. That is my own thoughts.
So, it is not that there is less need for public works in the local regions. The biggest problem is that the local governments have not got the financial capacity to bear the cost. Therefore, additional tax revenues allocated to local governments, as I mentioned, will create jobs in the regions. It is not just roads; burying telegraph poles underground may also become a big project. There are various needs in the regions, including the thinning of forests in mountainous areas that are currently not being attended to.
Giving these people a free hand in using the tax revenues will create new jobs. I believe, of course, that local governments would not be using it for retaining unnecessary workforces. Instead, the revenues will be used for job creation. For example, a municipal government may use the funds to hire workers for regular thinning of forests, as I suggested earlier. That will create jobs and also, there will be a greater variety of greenery and trees which will help the management of water resources and the mountain environment. This is what I mean by associating job creation with the local tax revenues. You may call that public works in the sense that it leads to the employment of local people. But this will be more the cumulative effect of small-scale works and small-scale employment, in a way different from large businesses setting up their operations in those local municipalities. I believe the Ministry of Internal Affairs and Communications and related ministries will need to give proper guidance.