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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.
Thank you.
[Q&A]
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?
PRIME MINISTER TARO ASO: If you look at the paper provided by the ruling coalition's tax commission, it says that a fundamental reform of the tax system including the consumption tax will be implemented expeditiously after the recovery of the economy. It also says that a sustainable fiscal structure will be established by the mid-2010s. What I am saying is not contradictory to the content of the paper, which I was notified about last evening. The basic policy is to raise the consumption tax rate in three years' time, by which time the economy should be recovering. For that purpose, we are now trying to go ahead with a bold, refreshing policy. I have been saying that the Japanese economy needs three years for a full recovery, which is one consideration behind the proposal I am making. Bold fiscal outlays require financial backing. The Government's stance, therefore, does not really contradict that of the tax commission.
QUESTION: On the dissolution of the House of Representatives and the election, Mr Ozawa of the DPJ mentioned some options like dissolving the Diet by consultation or by establishing an interim cabinet for that purpose. Do you intend to talk to Mr Ozawa about the timing of the dissolution and the election, in relation to the passing of the budgets and related legislation? Please share with us your thoughts now on the timing of the dissolution and the election.
PRIME MINISTER TARO ASO: With regard to policy, I am willing to have discussions with the DPJ, as I have been saying for some time at inter-party talks. However, I have no intention to discuss the timing of the dissolution.
As for the timing, I shall pass my own judgment.
QUESTION: I would like to ask you about the financial sources. You repeatedly mention that limitations can already be seen in curbing the increase of social security costs by 220 billion yen. Meanwhile, the issue of the financial resources has not been settled, with the tobacco tax hike being postponed. I understand that you have given instructions to Mr Hori, Chairman of the Policy Research Council of the LDP, but do you have any prospect or idea on this?
PRIME MINISTER TARO ASO: With regard to the 220 billion yen curbing of social security costs, I am aware that various questions have been raised. I know the situation is very tough, but we still have about a week or so and I expect maximum efforts will be made.
QUESTION: My question is on the emergency measures announced today. Given the second supplementary budget (of fiscal 2008) and the principal fiscal 2009 budget, how are you going to finance the measures using these two budgets?
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?
PRIME MINISTER TARO ASO: I would reiterate the basic stance that the financial resources for the measures to help people's daily lives shall not depend on deficit-financing bonds, as mentioned previously. There are various financing options, including the special account for employment insurance and the reserve fund from the special account for fiscal investment and loan which has been saved for absorbing interest rate fluctuations.
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.
QUESTION: Once again, I would like to clarify about the consumption tax. You said you are not against the ruling coalition's Main Outline of Reforms to the Tax System, but you did mention a fundamental reform of the consumption tax from fiscal 2011, to which the ruling parties -- particularly the New Komeito Party -- is clearly opposed. Is it still the Government's policy to have a Cabinet decision to spell this out in the mid-term programme?
PRIME MINISTER TARO ASO: We still have three years until 2011, and in three years' time we would like to have grown out of the current recession. That is my basic thought. Therefore, as I have been saying many times, the near-term top priority should be the stimulus package, and I said it will take three years for the Japanese economy to fully recover. Accordingly, there has been no change to my position of going ahead with the consumption tax reform in 2011.
QUESTION: I would like to have more detailed explanation on what part of the emergency measures will be financed by the second supplementary budget (of fiscal 2008) and what part by the principal fiscal 2009 budget. Do you mean that some of the fiscal outlays besides the measures to support the people's lives may have to depend on deficit-financing bonds? Is it also likely that the measures to be financed by the principal fiscal 2009 budget will primarily depend on deficit-financing bonds? Also, the reserve budget of one trillion yen, which I think is unprecedented, may draw many questions in the Diet. Do you think you can gain understanding on this?
PRIME MINISTER TARO ASO: With regard to the emergency reserve budget, I would say this is a once-in-a-century crisis and we honestly do not know what may happen. Therein lies the biggest problem. Given this unforeseen, novel kind of crisis, we need to take unusual measures vis-a-vis unusual situations. This is what we mean to have a reinforced reserve budget to prepare for further deterioration of the situation and other possibilities, for which the 500 billion yen or so reserve budget that we have had in the past may not be sufficient. As responsible political parties, I think we need to have a sufficient reserve budget in order to mobilize various measures. What sort of sudden changes are we anticipating? Well, if we can anticipate, then we will have budget lines for these situations. That may include social security and employment, to name just two.
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.
QUESTION: Regarding tax revenues allocated to local governments, which will be increased by one trillion yen as one of the emergency measures. You have been saying all along that the local governments should be able to use these revenues independently, but what has made you attach the condition of job creation this time?
PRIME MINISTER TARO ASO: These tax revenues allocated to local governments are, as you know, where the local governments have the greatest discretion. Previously, about one trillion yen worth of tax revenues earmarked for road projects were reallocated to the local governments as additional tax grants. Now, the local governments, if they want to implement road projects, are required to shoulder a certain portion of the burden, a portion which is sometimes referred to as a backdoor burden. If you look at the regions, some of the local governments have not got the financing capability to afford it, which means they cannot implement public works projects. This explains a 3% cutback in public works investment every year. On top of that, there has been an additional 1.5% decrease in public works over the past two years, roughly speaking.
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.
(ends)
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