Prime Minister of Japan and His Cabinet  
Speeches and Statements by Prime Minister TOP

Press Conference by Prime Minister Yasuo Fukuda on the Road-related Bill and the Taxation System

March 27, 2008

[Opening remarks by Prime Minister Yasuo Fukuda]

There remain only five more days until the end of March, which will be the end of this fiscal year. It is at this juncture that the House of Councillors is deliberating the budget and the related bill on the taxation system. However, in the event that the bill on the taxation system is not enacted during the current fiscal year, it will result in a significant barrier and confusion to the regional finances and to the lives of the people.

One week ago, I instructed the ruling coalition parties to give consideration to revising the bill on the taxation system. Afterwards, on several occasions, I called on the opposition parties to engage in policy discussions, but as of today there has been no progress in that regard. In my responsibility as Prime Minister to avoid chaos and protect the lives of the people, I have done all I could to create opportunities for dialogue with the opposition parties. However, given that the current situation does not allow for such dialogue, and since there is very little time left, I have decided to make an announcement in this manner, although I believe that normally it would be natural for this kind of content to be presented at a policy dialogue between the ruling and opposition parties.

In making this proposal, I decided to make sweeping reviews of the points that need to be reviewed. From that perspective, today I intend to explain my views on the proposed revision of revenue sources earmarked for roads to the opposition parties and, above all, to the people of Japan.

First, we must note that concerning the budget for roads, a series of instances of improper spending have come to light: for example, the budget has been used for purchasing relaxation articles and for paying for recreational trips organized by public interest corporations for their employees, among other things. I fully sympathize with the people who feel reluctant to pay taxes just to see them squandered in such a way. I also feel great anger for losing the trust of the people to such large extent. As the head of the administration, I apologize to the people of our nation, and I have decided to undertake a fundamental reform of the modalities for financial outlays.

That is why I will begin with abolishing or privatizing public interest corporations that depend largely on the road budget. I will also review the way contracts are awarded, toward introducing competitive measures. At the same time, I will eliminate non-transparent practices of senior government officials obtaining posts in related organizations after retirement from public office. Moreover, I will completely eradicate any inappropriate spending for such purposes as purchasing relaxation items, and thereby eliminate waste.

Secondly, there have been many questions asked as to why these revenues can only be used for roads, although there are many things that the government must do besides building roads. In this light, I have decided to abolish the system of earmarking revenue sources for roads, which only allows for revenues from gasoline tax to be used for road building, when we conduct a fundamental reform of the taxation system to be conducted this year, and to reallocate these tax sources to the revenues used for general purposes from FY2009 on. In making that change, I will take follow-up measures so as to not exert any negative influence on regional finances. These revenues will also be made available for the enhancement of emergency medical services, countermeasures against the declining birthrate, global warming countermeasures such as the development of new energy sources that do not emit CO2, as well as for other policies with various applications.

Thirdly, in reallocating these revenues to be used for general purposes, we will reconsider modalities for tax rates levied on gasoline and other items, including the provisional tax rate. In doing so, we will also give consideration to international trends of levying taxes on gasoline and other items to control CO2 emissions and thereby counter global warming, as well as to the need to build roads in the local regions and the severe fiscal situation prevailing both at the central government and regional government levels.

Fourthly, concerning the current road development plan, which calls for 59 trillion yen over ten years, I have become keenly aware during the recent Diet deliberations and at other instances that there are still a great many areas in which there could be room for review. To begin with, criticism has been leveled that ten years is too long for this plan. Going forward, we will compress the plan into a five-year period as we strive to draft a new plan, making use of the most recent data available. After doing so, we will carefully scrutinize the entire plan by conducting strict and objective evaluations, and then proceed with building only those roads that are deemed to be truly necessary.

I hereby promise to the people of Japan that we will steadily implement these four reforms.

These reforms will also be reflected into the FY2008 budget that will commence from April to the greatest extent possible.

To start with, in implementing the road budget, the coming new road development plan will be strictly reflected in the area deemed necessary. Furthermore, regarding the FY2008 budget, I am prepared to discuss with the opposition parties if they have any realistic proposals on the use of the revenues reallocated for general purposes.

Furthermore, I would like to propose the establishment of a policy consultation meeting between the ruling and opposition parties to advance the road revenue reform. Within this framework, we will first consider how the revenues from gasoline tax and other taxes are to be reallocated to the revenues used for general purposes and what is the appropriate tax rate in that event. Secondly, I would like to consider together what should be included in the new road development plan and finalize the plan based on that discussion.

We do not have much time left, but I have not given up. I firmly believe that if the ruling and opposition parties engage in discussions we will be able to break through the current situation. It is unacceptable for the general public to have to pick up the tab for the outstanding political issues - to avoid this situation, I very much hope that the opposition parties, in particular the Democratic Party of Japan (DPJ), will agree to meet for talks. It would be very easy to run away from the situation by exclaiming that there is no more time, but even so I will never give up, even until the very end. It is the people that move the political scene. I am determined to work to my utmost until the very end, and I ask from my heart for the understanding and the strong support of the people of Japan in this regard.

Thank you very much.


QUESTION 1: The DPJ is calling for the immediate repeal of the provisional tax. Just now in your proposal, you spoke of "giving consideration." When you say "consideration," are you thinking of abolition?

PRIME MINISTER FUKUDA: I did not say "consideration" with regard to abolition. Are you referring to the FY2008 budget?

QUESTION :I am speaking about the provisional tax portion.

PRIME MINISTER FUKUDA:What I said just now regarding the provisional tax is that we will abolish the system of earmarking revenue sources for roads when we conduct a fundamental reform of the fiscal system this year, and from FY2009 forward, reallocate them to the revenues used for general purposes.

QUESTION :So the time frame for this is next year?

PRIME MINISTER FUKUDA:We are talking about reallocating these revenues to be used for general purposes from FY2009.

QUESTION :So you are saying that any change of the provisional tax rate will be effected from FY2009, even if consideration is to be made? Are you saying that you do not consider shuffling the composition of the coming fiscal year's budget?

PRIME MINISTER FUKUDA: The opposition parties are now talking about abolishing the provisional tax. However, if this happens, there will first of all be a shortfall in fiscal resources. Furthermore, if the tax rate is cut, the price of gasoline will go down, which is problematic, as people may then wonder until when the price will remain so low. I imagine that this will create great chaos among gasoline users.

At the same time, if tax rates go down, we will lose 2.6 trillion yen of fiscal resources. What will occur as a result of that? Of course, there will not be money available to build roads, and this would also mean that there will be no money to be allocated to the regions. One of the political parties is saying that there will not be any shortfall in the regions, but where will that money come from? If the money is to come from the central government, where then will the central government procure that money from? Naturally these questions will appear. I have not received any explanation on these matters and, quite honestly, I really don't understand their logic.

When we seriously consider whether or not such a tax cut is practically possible, any argument for abolishing the provisional tax from FY2008 seems rather unrealistic.

QUESTION 2: The DPJ is calling for the immediate abolition of the provisional tax. If the opposition parties do not accept the proposal that you have just announced today, which would mean that the provisional tax will expire and become invalid, will you consider the possibility of having it readopted in the House of Representatives using the two-thirds majority at the end of April?

PRIME MINISTER FUKUDA:I am not looking far ahead right now. My focus is on what we do in the next five days. As I just said now, we must not allow any disruption to affect the lives of the people, and we must not disrupt the regions financially. Above all, it is extremely important that we do not allow these things to have a negative impact on the overall Japanese economy. Seeing things from that perspective, I believe that the opposition parties must understand the need to maintain the provisional tax. Indeed, I very much hope they will understand my position. That is why I would like to have talks with them.

QUESTION 3:I suppose that you have also provided an explanation to the members of the ruling party coalition regarding this new proposal. Have you gained the understanding from the ruling parties? A little while ago, the Chairman of the Policy Research Council of the LDP Sadakazu Tanigaki came to see you. What kind of report did you get from him regarding the prevailing atmosphere within the party?

PRIME MINISTER FUKUDA: There are various opinions within the party, but I did speak to the people there. My understanding is that, in general, they did agree with this proposal.

QUESTION 4:The sixth item on the paper that you have distributed indicates that the new road development plan will be strictly reflected in the implementation of the road budget plan for FY2008. Does this mean that, while not changing the FY2008 budget, you will scrutinize the road projects for FY2008 so as to not build unnecessary roads?

PRIME MINISTER FUKUDA: The Diet has already taken up this road plan. The results of the road traffic census will be available this autumn. Once we are able to review the results, we will see if there is a significant gap between the census and the current plan, and if there is, I believe our plan is to correct it as much as possible. At the same time, we must carefully examine whether or not competitive policies are conducted strictly in implementing the road budget. Of course, as I have just mentioned now, we must also make thorough efforts to eliminate any waste. That is what I have in mind.

QUESTION 5: It seems that there is still a large gap with the DPJ's position, given that the direction of the provisional tax has not been clarified, and as long as the current provisional tax rate for roads is maintained together with the system of earmarking tax revenues for the next year. Are you confident about gaining the understanding of the DJP on your proposal? Furthermore, are you prepared to compromise any further depending on the talks with them?

PRIME MINISTER FUKUDA: Regarding your first question about how the revenues will be used when they are to be reallocated to the revenues used for general purposes, I have already said that I would like to hold discussions between the ruling and opposition parties, and for that purpose proposed to launch a consultation meeting. Yes, there is a gap, and that gap must be filled. Both sides must work hard to fill that gap. For our part, we have put forward this proposal. It is now up to them to decide how they will respond. That is the responsibility of the opposition parties. Although there is only a little time left, I do intend to thoroughly discuss that point, and I am hoping to create a venue for those discussions.

QUESTION 6:The President of the DPJ Ichiro Ozawa has assigned himself the fundamental principle of immediately abolishing the provisional tax, arguing that abolishing that tax would result in a 2.6 trillion-yen tax reduction per year. In response to this, you have stated that immediate abolition is an unrealistic argument. I am sure that you will continue to make strenuous efforts in the time that remains, but related to the earlier question I would like to ask you if you have it in mind to call on Mr. Ozawa to hold a political party leaders' meeting and have a sincere dialogue.

PRIME MINISTER FUKUDA:For my part, I would very much like to have a political party leaders' meeting if it can be arranged. I would make it clear that I am very inclined to make a positive approach if that would help resolve the current situation.

However, concerning the call for the abolition of the provisional tax to reduce taxes, there is a possibility that it could result in fiscal difficulties both for cities and regions around Japan. Naturally this would put a strain on the overall economy. I would like for everyone to think about that. When we consider the situation comprehensively, I think that we have to maintain the provisional tax rate for this coming year. Regarding the bill on revising the taxation system for FY2008 submitted to the Diet, I am making a proposal so as to at least pass the road-related part, which I believe to be best after considering the whole picture, and that is what I have been saying.

QUESTION 7: I would like to just ask one more time. In the paper that was handed out, the fourth item says that the provisional tax rates will be reviewed based on the prevailing fiscal situation as those portions are reallocated to be used for general purposes from FY2009 on. Even if there is some change in names for these taxes - into environmental tax for instance, are you saying that you intend to maintain those revenues of 2.6 trillion yen even after FY2009?

PRIME MINISTER FUKUDA:When one is contemplating a reform of the tax system, one should not focus solely on certain portions. We must also consider the social welfare systems together with that portion. Also, there have been talks about increasing the public contribution to the pension system. So I believe this question must be considered in conjunction with how we are to procure the budgets for these ends. In considering that, we must also think about the international shortage of oil, along with various outstanding issues including those of the environment. And from that perspective, I believe that there is a need to maintain the provisional tax rate, but I would like to see substantial discussions on that regard, too, when we conduct a fundamental reform of the tax system. Our honest feeling is that during that process we would very much like to have the opposition parties express their views.

QUESTION 8:Even in the event that you are unable to reach agreement with the opposition parties, can we understand that you are promising the people of Japan that those tax revenues will be reallocated to be used for general purposes from FY2009 on?

PRIME MINISTER FUKUDA:No matter what the prevailing situation is at that time, I intend to keep the promises that I have just made now.