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Press Conference by Prime Minister Yukio Hatoyama

25 December 2009
[Provisional Translation]

Opening Remarks by Prime Minister Yukio Hatoyama

We have just completed the formulation of [the government's draft of] the fiscal 2010 budget, which has been adopted by the Cabinet in a formal decision. Yesterday marked exactly the one-hundredth day since the new Cabinet was inaugurated after the historic change of government brought about by the recent general election. Since then, we have devoted every effort to introduce a new kind of politics. Through the formulation of this first full-scale budget, the new government is offering the public specific answers as to what kind of country it intends to build and what kind of policies it will implement.

I shall now explain the contents of this budget for the next fiscal year. I should like to call this "a budget to protect people's daily lives". In preparing it I introduced three reforms.

First, in the course of budget formulation we adhered to the principle of "not spending on concrete, but on people". We did our utmost to secure resources for protecting human life, such as for child-rearing, employment, medical care and the environment. And in order to increase the budget in these areas, at the same time we pared down existing budgets wherever possible. Public works have been cut, and waste of tax money during the intermediate stages of budget utilisation has been eliminated. We have instead made these funds go to the ultimate end-users. We have succeeded in securing the roughly three trillion yen necessary to implement the [Democratic Party of Japan's] Manifesto, by revising the existing budget through spending cuts, reducing the amount of unnecessary funds held in reserve by public interest corporations, and other such efforts, rather than resorting to the facile option of issuing debt.

The second reform was to establish full political leadership. That is, formulating the budget by having politicians think through [the choices to be made] and making them take [direct] responsibility. In the past, the Ministry of Finance prepared the draft budget, and the formulation of the budget proceeded according to predetermined scenarios. However, it was the Kantei [the Prime Minister's Office] which took the initiative in preparing this budget, with the National Policy Unit playing the central role, Deputy Prime Minister Naoto Kan serving as the "control centre", and myself giving instructions at important junctures. We also ended the practice of the Ministry of Finance compiling the first draft of the budget proposal. Coordination on important matters, such as the basic principles governing the budget, and their linkages to the Manifesto, was led by politicians through consultations at the Ministerial Committee [on the Formulation of the Budget of Fiscal 2010] and among the three [ruling coalition] parties, negotiations among relevant ministers and senior vice ministers, and other means.

With regard to tax system reforms, I ensured, based on the idea that "taxes are politics", that all members of the Tax Commission were politicians. I also unified the process of consideration of the reforms, which was formerly a twin-track process played out among the ruling parties as well as in the government. I thereby established a system through which politicians [serving in the government] take responsibility for the tax regime.

Bold increases and reductions of budget allocation were made possible in a manner unbeholden to existing frameworks as a result of a thorough exercise of political leadership.

The third reform was bringing transparency to the budget formulation process. As you are well aware, the review of government programmes (jigyou shiwake) conducted by the Government Revitalisation Unit has received strong support from the public. It was the first-ever attempt to have examiners from the private sector work together [with members of the government] in a setting open to the public eye in order to deliberate on the right amount of money for individual budget items. We received many a comment saying, "I had no idea there was so much waste", "I can now clearly see the process for deciding the budget", and "I now feel politics is more relevant to my daily life". We succeeded in identifying a large amount of waste that had been ignored under previous governments, such as funds wasted during the intermediate stages of budget utilisation and the unnecessary accumulation of reserves in funds [administered by public interest corporations], but which were clearly wasteful as seen by the general public.

The results of this review of government programmes have for the most part been reflected in the budget and applied cross-sectionally to other government projects that had not been under review. Thus I am convinced that we managed to slash a great deal of waste.

Next I should like to outline the specific contents of the fiscal 2010 budget. First, as for the skeletal framework of the budget, the total scale reaches 92.3 trillion yen, making it the largest in history. Roughly 2.7 trillion yen has been cut from the aggregate total of budget demands [made by the various government ministries], which had reached 95 trillion yen. On the revenue side, we secured non-tax revenues of approximately 11 trillion yen, the largest such amount ever, through reviews of special-purpose budget accounts and public interest corporations. As a result we have been able to limit the amount of new government bond issuance to 44.3 trillion yen?slightly over but nevertheless approximately 44 trillion yen. We have gauged revenues and restricted outlays accordingly. This 44 trillion yen is a limit that was set in order to maintain fiscal discipline while taking into account such factors as the fall in tax revenues. In having achieved this level, I believe we have carried out our responsibilities towards the future.

Looking at individual spending areas, social security-related expenditures will see a major, 10 per cent increase in funding, while public works-related expenditures have been cut by 18 per cent, or almost a fifth. This is truly a shift in focus "from concrete to people".

We have also set aside approximately 2 trillion yen in the budget in order to make every effort to revive the economy and to enable responses which are well adapted to changes in economic conditions. In the coming months we will carefully monitor economic trends and devote our efforts to avoid a second dip in economic activity, a concern which is shared by the general public.

Next, I shall address the key points of the budget, including those related to the Manifesto that the new government pledged to the public and to the Agreement for a Three-Party Coalition Government. First, regarding the child allowance. Thirteen thousand yen per child per month, or 156,000 yen annually, shall be provided as a child allowance, as pledged in the Manifesto. No income ceiling will be set. It shall be provided regardless of fluctuations in household income. We will also establish a system under which a recipient can easily donate this money to his or her local government for it to be used to fund child-raising assistance.

With regard to child-rearing, in addition to the child allowance, we pledged to make education free at public senior high schools. In accordance with this, the national government will fund an amount which is equivalent to the tuition fee [for each high school student], thereby making tuition effectively free of charge.

We have decided to provide assistance to households with children in private senior high schools of 120,000 yen per year, or 240,000 yen in the case of low-income households.

Next is the area of employment. As a major feature of countermeasures against unemployment, we will increase the resources for employment adjustment subsidies by a factor of more than 10 compared to the amount budgeted for the current fiscal year, in order to subsidise a portion of salaries borne by companies maintaining employment despite a fall in earnings and profits. Through this funding, in fiscal 2010 we will be able to protect the jobs of some 750,000 people employed at large companies and 1.55 million employees of small and medium-sized enterprises.

We shall also enhance medical and nursing care services. We shall revise upwards the remuneration for medical services [reimbursed to medical institutions] for the first time in ten years. Sweeping reviews of resource distribution will also be conducted so as to enhance the capacities of the core hospital(s) in each region as well as those of the emergency, obstetric, paediatric and surgery services. In the field of nursing care, we shall enhance child-care facilities within nursing care facilities in order to improve the working environment of their staff.

From the viewpoint of improving public health, the tobacco tax shall be raised by 3.5 yen per cigarette which will translate into a retail price increase of roughly 5 yen per cigarette, in order to reduce consumption. Regarding measures to address hepatitis, I have been personally mindful of the desperation being felt by patients since meeting them at the Kantei in November. In order to address their feelings, we shall expand the range of treatment eligible for subsidy and lower the maximum financial threshold for patients.

I now turn to the environment. In considering how to protect life, it is important that we protect not only human life but also the "life" of the planet on which we live. In order for Japan to lead the world in the field of the environment, we must advance technologies in the area of carbon dioxide capture and storage as well as in such fields as fuel cells. We will also robustly promote the use of electric vehicles and other such products. Science and technology are vital means to foster the dreams of society and create the foundations which enable Japan to compete in the world with its knowledge and skills. We shall make concentrated and efficient investments in truly critical fields including the pursuit of "green innovation" while eliminating waste and duplication among ministries and agencies.

As for agriculture, we will, as pledged, establish an individual household income support system for [commercial] farming households. Concerning the elimination of highway tolls, we have decided first to implement a pilot programme on a limited number of routes and then move further forward in stages as we assess the programme's impacts.

With regard to the petrol tax and other [road-related] taxes on which "provisional" taxes rates are being imposed [on top of the base rates], after repeated careful consideration we have decided to abolish the [system of] "provisional" taxes rates whose duration was extended [again last year] for a ten-year period, but the actual total rates of the taxes shall remain unchanged. However, [as far as the petrol tax is concerned] we shall create a system through which it will be possible to halt the tax levy equivalent to that due to the [current] provisional tax rate should there be an abnormal and sustained rise in the price of crude oil.

As for the [economic] strategy in the mid- to long term, economic growth is necessary if we are to protect the daily lives of the people. This would also help to rebuild public finances. In light of this, I intend to formulate a new growth strategy, that is, a new policy package prepared from a mid- to long-term perspective which gives emphasis to employment, the environment, children, science and technology, and Asia, among other areas. We will then move to implement this package as swiftly as possible.

With regard to fiscal discipline, we will determine in the first half of 2010 a framework for fiscal spending over the mid-term that takes [the situation foreseen over] multiple fiscal years into consideration. We will also draw up a strategy for the management of public finances, including the manner of fiscal discipline [to be sought] over the mid- to long term, and chart out a path towards sound fiscal health.

One topic to be pursued in the future is a new public commons. Under this concept, not only the public sector but also private citizens, NPOs, companies and other private-sector entities would actively provide public goods and services, engaging in such close-to-home fields as education and child-rearing, community-building, nursing care and welfare activities. We intend actively to support efforts aimed at providing these kinds of new public services.

I will establish a round-table conference on this theme soon after we enter the new year. We will address this topic in earnest taking into account the views of NPOs and others actually engaged in providing these services as well as the voices of the public.

Looking back, this government has its roots in the pledges it made with the public. We have formulated the budget with the belief that the conduct of the new government must be grounded in these pledges. As public finances are in fact strained, we were not able to bring about all that we pledged in our Manifesto. We have also revised certain portions of it in consideration of public opinion. However, I believe that on the whole we have given concrete form [in the fiscal 2010 budget proposal] to a large number of the elements of the Manifesto, including the child allowance, free high school education [at public schools], and reviving medical care, and we have adhered strictly to the fundamental principle of "not spending on concrete, but on people".

I shall submit this fiscal 2010 budget proposal at the earliest possible time to the Diet when it is convened in the new year. I intend to continue to build a better Japan and a new Japan along with you, my fellow citizens.

Thank you.


QUESTION: The total scale of the general budget account proposal is approximately 92 trillion yen, the largest in history. The amount of new government bonds issued would also be the largest ever. Some indicate that, in the end the budget became one of pork-barrel spending, which the Democratic Party of Japan had previously criticized, even though opinion polls and other sources suggest that the majority among the public believe that fiscal discipline should be maintained even if that were to require a revision of the Manifesto. What are your thoughts on this point?

PRIME MINISTER: The total scale of the general budget account proposal is indeed the largest in history. The issuance of new government bonds, at 44 trillion yen, is the largest in history; the amount of new issuance during the current and next fiscal years will be comparable. I believe we have just managed to keep ourselves within the very outer limit of fiscal discipline.

As you are aware, we now face an extremely harsh economic situation and job environment. Thus of utmost importance is to protect the lives of the people. We therefore included necessary spending items for this purpose. However, the approach will not be the same as in the past, namely one which was essentially to prepare a package of mainly projects to build [public] facilities (hakomono) and public works. Rather, we have cut such projects dramatically and shifted to a budget that gives importance to people's lives. The most typical example of this is the child allowance, as you are aware.

In compiling just such a budget, we were able to formulate one that would improve the daily lives of the Japanese people so far as possible. This is far from the pork-barrel budgets of previous years.

As proof of this, I had a review of government programmes conducted, centred on the efforts of Minister [of State for Government Reform and for Civil Service Reform Yoshito] Sengoku. I am sure there were various opinions on this, for example that there were more areas which could have been reviewed, and that further budget cuts were possible. But my own feeling is that the greatest possible efforts were conducted in a very limited amount of time, and I believe that on the expenditure side of the fiscal 2010 budget proposal we only budgeted items that are absolutely necessary after having thoroughly eliminated waste. In this sense, any criticisms of "pork-barrel spending" are simply misguided.

QUESTION: Regarding the budget related to the relocation of Futenma Air Station, the relocation site and the specific budgetary allocation were not indicated in the budget. Against likely objections from the US, how do you intend to explain to them the government's stance on the relocation issue? Also, with regard to the deadline of next May for selecting a relocation site, do you definitely intend to determine the relocation site by May?

PRIME MINISTER: As for the Futenma relocation issue, as you know, we intend to take a decision no later than May, including on the site of base relocation. I commit myself to making the greatest possible efforts for this end. We are budgeting the costs necessary for the realignment of the US forces in Japan, [to be implemented once] this decision is taken, and we are going to conduct an environmental impact assessment in fiscal 2010 [as originally foreseen].

As for the US, I believe it is essential to tell them that the necessary budget will be available when the new relocation site has been determined, as I have just explained. I believe it is fully possible to gain their understanding on these points.

As for the realignment of US forces, the question just now was whether or not a relocation site can be chosen by May. For my part I intend to do my utmost for this end. I will do so with the notion that, in a sense, this is the foremost issue at present.

QUESTION: I think you now realise very keenly that fiscal conditions are dire, having been through this budget formulation process. You mentioned just now that you would be formulating a strategy for the management of public finances over the mid- to long terms. I recall that upon taking office you stated you would not raise the consumption tax rate for four years. Given the current situation, in order to secure necessary fiscal resources do you have any intention either to raise the consumption tax rate or to consider the introduction of some other large-scale indirect tax?

PRIME MINISTER: During this year's general election, as a result of which we achieved a historic change of government, I vowed to the Japanese people that I would not raise the consumption tax rate for four years. I received tremendous popular approval regarding this point.

So, while I fully recognise the dire state of our public finances, by no means will I consider raising the consumption tax during these four years. Obviously we must maintain fiscal discipline. What I believe we must do is to redouble our efforts in various ways during the next fiscal year to cut waste, thoroughly to eliminate it, such as by expanding and enhancing our review of government programmes, so as to trim expenditures still further through a variety of means.

QUESTION: One issue which drew attention is the extent to which the policies enumerated in the Manifesto would be incorporated in the budget. You mentioned earlier that, while the child allowance and effectively free tuition at public senior high schools have been largely incorporated as requested [by the Ministry of Education and Science], [the budget which would be required to implement in full] other items [in the Manifesto] such as making highways toll-free have been cut drastically [in the budget proposal].

You spoke of "a budget to protect people's lives". In particular, which policies did you care about the most, and what inventive approaches did you take? Also, in what ways will the daily lives of the people change due to this budget compared to previous budgets prepared by the Liberal Democratic Party-led government?

PRIME MINISTER: I believe that this budget formulation process produced a budget [proposal] that boldly allocates resources to the most important items. We placed the greatest emphasis on putting into practice the basic principle of "not spending on concrete, but on people", such as by creating the child allowance. Also we increased social security spending by 9.8 per cent, or roughly 10 per cent. The budget also includes a 5.2 per cent expansion in funding for education and the sciences so as to make the future of our children as well as Japan's future.

The regions are facing a very serious situation. I consider "protecting people's lives" to mean the same as "protecting the local areas". We have increased the tax revenue grants [to be allocated from the general budget account] to local governments by 5.5 per cent as a budget that protects the local areas. We are introducing a so-called individual household income support system for [commercial] farming households, and we also expanded by 34 per cent funding to ensure a stable food supply.

On the other hand we reduced spending on public works by 18 per cent. This is something that could never have occurred under the bureaucracy-led budgeting process in place before, in which the Ministry of Finance made decisions based on prior consultations with each ministry. I seek to create a budget framework that thoroughly takes care of people's lives ? a framework through which we can ensure a greater degree of peace of mind about the future than before, however small the gain may be, among both youth and the elderly. With this in mind we made heavy cuts in spending which is not urgent, even if not unnecessary. I hope you will understand that this was what I found the most difficult, or rather, what I took the greatest care on.

QUESTION: Concerning what you said just now, there was discussion on reducing taxes on petrol and so forth, yet [your decision not to change the total amount of taxes on petrol and other road-related taxes] effectively amounts to a modification of the Manifesto. You stated that this was "after repeated careful consideration", but in concrete terms, what were your criteria for taking this decision, and what was your rationale for altering [what was set forth in] the Manifesto? I ask you to provide a specific explanation rather than referring to something vague or abstract like "public opinion".

PRIME MINISTER: There were several reasons. The first is the major difference in the price of petrol between this year, when the price stayed relatively low and stable, and last year when [prices soared at times and] the [DPJ] group seeking to lower petrol prices took its strong stance [in the Diet]. That is to say, the price of petrol is not such an issue right now in people's daily lives. This in turn has shaped public opinion. I expected there naturally to be calls from the public to abolish the provisional tax rates, as that would amount to tax relief, but this has not really been the case. Quite the contrary, we heard many views to the extent that, given the severe state of public finances, people would prefer to have petrol prices stay the same and to have resources allocated to more important areas. These were the most important factors, namely the price of petrol and public sentiment.

In reality, the very serious state of public finances was of course [itself] also a major reason. I would add that I had doubts on the wisdom of lowering petrol prices by a substantial margin. Having attended COP15, I had to consider whether a price cut would be right from an environmental point of view when the global environment was the subject of so much debate. We had also received criticism that reducing the levy once [by abolishing the provisional tax rate] and then restoring it at a slightly lower level [by introducing a new tax whose rate was slightly lower] would merely be a makeshift measure. Thus having taken into account a variety of reasons and after repeated careful consideration in the end I decided to maintain the provisional tax rates.

QUESTION: I would like to ask about the Manifesto. You have been saying so far that you will implement the Manifesto over four years, and yet by maintaining the same rate of tax [on petrol] as imposed now by the provisional tax rate and so on, you have modified [certain parts of] the Manifesto in the course of formulating the budget this time. Looking forward to next year's election of the House of Councillors, do you intend to begin work on a revision of the Manifesto, including the work schedule that you have prepared so far?

I believe that confidence in the Manifesto has been shaken by the recent changes to it. You have said until now that the Manifesto is a contract with the public. Are you thinking of any changes to the definition of the Manifesto?

With regard to Futenma, which was raised in an earlier question, why did you set next May as the deadline? Please give the reason.

And on an increase of the consumption tax rate, will you refrain from discussions on this topic even after the election of the House of Councillors?

PRIME MINISTER: First of all, the Manifesto is indeed a contract the Democratic Party of Japan entered into with the public. While this is a coalition government, the coalition has the DPJ at the centre. Therefore I believe that the execution of the Manifesto is required as a fundamental point.

From that understanding, I have expressed to the Japanese people my feelings of regret that in the coming fiscal year not all of the planks of the Manifesto will be executed as stated, the main exception being [the abolition of] the provisional tax rates.

I mentioned earlier I felt it essential [not just to observe the letter of the Manifesto but] also to attach importance to the various views of the public. We have prepared a work schedule to be carried out during these four years. Since changes to this have already occurred in the first year, I believe certain revisions will obviously be necessary.

I consider [the relationship between the contents of the Manifesto and the changes to be made] to be [one between] the basics [of a matter] and, in a sense, their application. The basics shall be upheld on the one hand, while on the other the work schedule will be modified taking into account such factors as views of the general public and the fiscal situation. And there needs to be an open process by which we seek to gain public understanding and support on the changes we propose to make in the work schedule, that is, on the promises we made to the public.

As for the timing of the relocation of Futenma, I thought it impossible to make the US wait too long without a clear sense of timing if we hope to gain their understanding [on the relocation site to be determined]. I regarded half a year as the longest they could be asked to wait, and I considered it to be the government's responsibility to reach a final conclusion by May because the possibility that I visit the United States again around that time may arise.

With regard to the consumption tax, we have clearly said that we would not raise the tax rate for four years. I believe therefore that, even when the election of the House of Councillors is over, and whatever the result may be, we could not justify changing that stance or raising the tax rate.