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(Provisional translation) Statement by Prime Minister Junichiro Koizumi on the "Guidelines for Formulation of the FY2004 Budget" (Cabinet Decision) Responding to the Proposals of the Council on Economic and Fiscal Policy December 5, 2003

Today, based on the proposals of the Council on Economic and Fiscal Policy, the "Guidelines for Formulation of the FY2004 Budget" was decided by the Cabinet. In the Guidelines, we have continuously carried forward from the previous year the policy of realizing a "Budget for Reform Resolution" in the formulation of the FY2004 Budget. Since my appointment as Prime Minister of Japan, I have promoted reforms under the conviction that "without structural reform there will be no rebirth or growth in Japan." Thanks to the efforts made in the past two and a half years, the buds of reform are now coming to be seen. In order to nurture the buds of reform into a large tree, it is necessary to spread the achievements of the reform to the localities and people's lives as well as continue to vigorously promote structural reform across the whole economy and society. In order to realize the rebirth and growth of the Japanese economy, we will promote structural reform across various areas including regulations, finance, tax system and expenditures in an integrated, consistent and swift manner under policies of "no growth without reform," "from public sector to private sector," and "from the state to the localities." With the objective of promoting reform, I have been instructing the relevant ministers to make respective efforts with their initiatives during the intensive meetings of the Council on Economic and Fiscal Policy. Based on its outcomes, the "Guidelines" indicates the direction of concrete reforms that are to be implemented next fiscal year, which include the "establishment of an equitable and sustainable social security system of mutual support by the young and the aged"; "the reform package of the three issues, namely; the abolishment and reduction of state subsidies to one trillion yen, outset of the local allocation tax system reform, and the realization of transfer of tax revenue sources to local government"; and "utilization of 'model projects' and 'policy packages' as the reform of budgetary techniques." Furthermore, for the revitalization of local economies and creation of employment opportunities in the localities, we will drastically promote regulatory reform focusing on the idea of "the rebirth of the Japanese economy will be realized with the support of vibrant local economies." We will also seek for revitalization of the local industry by utilizing the ingenuity and special characteristics of the region, and implement policies on employment and small- and medium-sized enterprise (SME) and promote outsourcing of administrative services to private sectors. In order to establish a sustainable fiscal structure to maintain a vibrant Japanese economy, it is necessary to further promote expenditure reform by conducting a drastic review of the government's total expenditures. In the FY2004 Budget, we will eliminate waste and streamline expenditures so as to reduce the general account expenditure and general expenditures below the FY2003 level in real terms, as well as streamline and rationalize the expenditures for the special accounts. Furthermore, we will utilize the techniques of "policy packages " and seek for a drastic qualitative improvement in expenditures through prioritized and efficient budgetary allocation in areas for the realization of a vibrant society and economy, such as "improvement and utilization of human resource -education and culture, science and technology, and information technology (IT)," "attractive urban and local areas with their own ideas and characteristics," "building a fair and secure aging society and measures to address declining birthrate," and "creating an environment-friendly society and dealing with global environmental issues." The Cabinet will work as one to formulate a FY2004 Budget that conforms the 'Budget for Reform Resolution' to realize the bright future of Japan by exerting its latent ability and potential.