Professional Documents
Culture Documents
How financial institutions of Japan
are organized and operated for
sustainable economic growth?
Prepared for
Effective Fiscal Governance for Sustainable Economic Growth In Asia,
24, April 2019, Bangkok, Thailand
Kenzo Oe
Policy Research Institute, Ministry of Finance, Japan
Contents
1. Current Fiscal Situation of Japan
2. Cause of Huge Fiscal Deficit
3. Budget Process and Fiscal Institutions
4. Recent Efforts for Economic and Fiscal Sustainability
1
1. Current Fiscal Situation of Japan
2
FY2019 Budget: Expenditure and Revenue
(Ordinary + Temporal and Special Measures)
General Account Expenditure General Account Revenue
(Unit : bn yen)
National
Debt Service Government
23,508.2 Interest Bond issues
23.2% Payments 32,660.5
32.2% Income Tax
8,850.2 Tax and
19,934.0
Redemption of the 8.7% Stamp
Social Security Special 19.6% Revenues
National Debt
34,059.3 Deficit-
14,658.0 62,495.0
33.6% Financing
14.4% General Account Bonds
General Account
Primary Corporation
Others Total Expenditures Expenses 25,708.5 Total Revenues Tax
77,948.9 Construction
25.3%
10,134.7 101,457.1 Bonds 101,457.1 12,858.0
10.0% 76.8% 12.7%
(100.0%)
6,952.0 (100.0%)
National 6.9%
Defense Local Allocation
5,257.4 Public Tax Grants, etc. Other Revenues Others Consumption Tax
5.2% Works 15,985.0 6,301.6 10,311.0 19,392.0
6,909.9 15.8% 6.2% 10.2% 19.1%
Education
6.8%
And Science
5,602.5
5.5%
(Note 1) Figures include Temporal and Special Measures, amounting to 2,028.0 bn yen.
(Note 2) Figures may not add up to the totals due to rounding.
(Note 3) Social security related expenditures account for 55.0% of the general expenditure.
3
FY2019 Budget: Expenditure and Revenue
(Excluding Temporal and Special Measures)
National
Debt Service Interest Governmen
Payments t Bond
23,508.2
23.6% 8,850.2 issues Income Tax
8.9% 31,878.6 19,934.0
Redemption of the 32.1% 20.0%
National Debt Social Security Special Deficit- Tax and
33,991.4 Financing Stamp
14,658.0
34.2% Bonds General Account Revenues
14.7% General Account 25,708.5 62,495.0
Primary
Total Expenditures Expenses 25.9% Total Revenues Corporation
Others Construction
75,920.9 99,429.1 Tax
9,296.0 Bonds
9.3%
99,429.1 76.4% 12,858.0
6,170.1 (100.0%) 12.9%
National (100.0%) 6.2%
Defense
5,206.6 Local Allocation
Public Others Consumption Tax
Tax Grants, etc. Other Revenues
5.2% Works 5,055.6 10,311.0 19,392.0
15,985.0 10.4% 19.5%
Education 6,059.6 5.1%
16.1%
And Science 6.1%
5,382.4
5.4%
Nominal GDP (tn yen) 507.3 518.2 533.0 536.8 547.4 552.5 566.1
2.9% 1.1%
Consumer Price Index 0.9% 0.2% -0.1% 0.7% 1.0%
(0.9%) (0.6%)
<Fiscal Indicators: Central Government’s General Account> (Unit: tn yen, unless otherwise stated)
31.9
Government Bond Issues 1/ 42.9 41.3 36.9 34.4 34.4 33.7
(32.7)
75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
(FY)
(Note1) FY1975 - FY2017: Settled Figures; FY2018: Based on the Second Supplementary Budget, FY2019: Based on Draft Budget.
(Note2) Following various bonds are excluded: Ad-hoc Special Deficit-Financing Bonds issued in FY1990 as a source of funds to support peace and reconstruction activities in the Persian Gulf Region,
Tax reduction-related Special Deficit-Financing Bonds issued in FY1994 - FY1996 to make up for decline in tax revenue due to a series of income tax cuts preceding consumption tax hike from 3%
to 5%, Reconstruction Bonds issued in FY2011 as a source of funds to implement measures for the Reconstruction from the Great East Japan Earthquake and Pension-related Special
Deficit-Financing Bonds issued in FY2012 and FY2013 as a source of funds to achieve the targeted national contribution to one-half of basic pension.
(Note3) The dotted line in Total Expenditure represents a figure including the expenditure for the Temporal and Special Measures; and the solid line represents a figure excluding it.
The amount of Bond issues includes the bond issued for the Temporal and Special Measures; and the amount in parentheses represents the Construction bond issued for the Temporal and Special
Measures.
6
Accumulated Government Bonds Outstanding
(trillion yen)
950
897
900 Equivalent to 14 years of General Account Tax Revenue 880
5
6
850 (Tax Revenue in FY2019 General Account Budget: ¥62 Reconstruction Bonds
831 853
5 273
277
805 7
269
800 774 6 268
FY2019 Government Bonds Outstanding 744 8 266
750 ¥897 trillion (projected) 705 9 260
Special Deficit-
Financing Bond
9
Long-Term Debt Outstanding of Central and Local Governments
(Unit: trillion yen)
FY1998 FY2003 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019
<Actual> <Actual> <Actual> <Actual> <Actual> <Actual> <Actual> <Actual> <Actual> <Actual> <Actual> <Estimated> <Draft Budget>
Central
390 493 621 662 694 731 770 800 834 859 881 909 928
Government
( 387 ) ( 484 ) ( 613 ) ( 645 ) ( 685 ) ( 720 ) ( 747 ) ( 772 ) ( 792 ) ( 815 ) ( 832 ) ( 854 ) ( 875 )
General
295 457 594 636 670 705 744 774 805 831 853 880 897
Bonds
( 293 ) ( 448 ) ( 586 ) ( 619 ) ( 660 ) ( 694 ) ( 721 ) ( 746 ) ( 764 ) ( 786 ) ( 805 ) ( 825 ) ( 844 )
Percentage
56% 88% 121% 127% 136% 143% 147% 149% 151% 155% 156% 159% 158%
of GDP
( 56% ) ( 87% ) ( 119% ) ( 124% ) ( 134% ) ( 140% ) ( 142% ) ( 144% ) ( 143% ) ( 147% ) ( 147% ) ( 149% ) ( 149% )
Local
Governments 163 198 199 200 200 201 201 201 199 197 196 196 194
Percentage
of GDP 31% 38% 40% 40% 41% 41% 40% 39% 37% 37% 36% 35% 34%
553 692 820 862 895 932 972 1001 1,033 1,056 1,077 1,105 1,122
Total
( 550 ) ( 683 ) ( 812 ) ( 845 ) ( 885 ) ( 921 ) ( 949 ) ( 972 ) ( 991 ) ( 1012 ) ( 1028 ) ( 1050 ) ( 1069 )
Percentage
105% 134% 167% 173% 181% 189% 192% 193% 194% 197% 197% 200% 198%
of GDP
( 105% ) ( 132% ) ( 165% ) ( 169% ) ( 179% ) ( 186% ) ( 187% ) ( 188% ) ( 186% ) ( 189% ) ( 188% ) ( 190% ) ( 189% )
(Note1) GDP: FY1990 - FY2017: Actual Figures, FY2018 and FY2019: Based on the Government Economic Outlook.
Central Government debt: FY1990 - FY2017: Actual Figures, FY2018: based on the Second Supplementary Budget, FY2019: draft budget.
Local Government debt: FY1990 - FY2017: Actual Figures, FY2018 and FY2019: based on Local Government Debt Plan, etc.
(Note2) Government Bonds Outstanding includes Reconstruction Bonds as a source of funds to implement the measures for the reconstruction from the Great East Japan Earthquake in FY2011- FY2019
(FY2011: 10.7 trillion yen, FY2012: 10.3 trillion yen, FY2013: 9.0 trillion yen, FY2014: 8.3 trillion yen, FY2015: 5.9 trillion yen, FY2016: 6.7 trillion yen, FY2017: 5.5 trillion yen, FY2018: 6.0 trillion yen,
FY2019: 5.4 trillion yen) and Pension-related Special Deficit-Financing Bonds as a source of funds to achieve the targeted national contribution to one-half basic pension (FY2012: 2.6 trillion yen,
FY2013: 5.2 trillion yen, FY2014: 4.9 trillion yen, FY2015: 4.6 trillion yen, FY2016: 4.4 trillion yen, FY2017: 4.1 trillion yen, FY2018: 3.9 trillion yen, FY2019: 3.6 trillion yen).
(Note3) Figures in parentheses (to FY2017) do not include front-loading issuance for refunding. Figures in parentheses (from FY2018) do not include front-loading limit of issuance for refunding.
(Note4) The borrowings in the Special Account for Local Allocation and Local Transfer Tax are shared by the central government and local governments in accordance with their shares of redemption. The
amount of the borrowings outstanding incurred by the central government was transferred to the General Account at the beginning of FY2007, so that the borrowings outstanding in the Special
Account since the end of FY2007 are the debt of the local governments (approx. 31 trillion yen in FY2019).
(Note5) Government Bonds Outstanding in the Special Account for Fiscal Investment and Loan Program are at approximately 92 trillion yen as of end-FY2019.
10
International Comparison of General Government Gross Debt
(%) (%)
240 Japan
CY 2004 2005 2006 2007 2008 2009 2010 2011
Japan 171.7 176.8 176.4 175.4 183.4 201.0 207.9 222.1
U.S. 66.2 65.6 64.3 64.8 73.8 86.9 95.5 99.9
U.K. 38.6 39.8 40.7 41.7 49.7 63.7 75.2 80.8
210
Germany 64.8 67.0 66.5 63.7 65.2 72.6 80.9 78.6
France 65.9 67.4 64.6 64.5 68.8 83.0 85.3 87.8
Italy 100.1 101.9 102.6 99.8 102.4 112.5 115.4 116.5 180
Canada 72.1 70.9 70.1 66.8 67.8 79.3 81.1 81.5
30
0
2004200520062007200820092010201120122013201420152016201720182019
(CY)
11
International Comparison of General Government Net Debt
(%) (%)
160
CY 2004 2005 2006 2007 2008 2009 2010 2011
Japan
Japan 95.2 96.4 95.4 97.6 108.5 122.7 131.1 142.4
U.S. 47.8 46.5 45.0 44.9 51.7 62.7 70.0 76.5
U.K. 34.7 35.8 36.3 36.6 43.9 57.0 68.1 72.5
140
Germany 54.5 56.9 55.8 52.9 52.6 59.4 60.9 59.2
France 56.8 59.0 58.1 58.1 59.8 69.7 73.6 76.4
Italy 92.6 93.4 94.2 92.1 94.1 102.8 104.7 106.8 120
Italy
Canada 32.4 28.4 25.5 22.1 18.4 24.4 26.8 27.1
20
0
2004200520062007200820092010201120122013201420152016201720182019
(CY)
12
2. Cause of Huge Fiscal Deficit
13
Population Aging and Budget Structure
1991:
13%
42.1 12.2 16.0
10 1991 (8.9%) (2.6%) (3.4%)
Expenditure, FY1991
(trillion yen)
0
1 11 21 31 41 51 61 71
Source: National Institute of Population and Social Security Research “Japanese Future Demographic Projection “ (Apr. 2017)
14
Estimated Demographic Composition (as of April 2017)
(million people)
140 Latest Estimation (April, 2017)
4.3
(4.4%) From 65 to 74
80
22.5
(25.5%)
60 71.2
(56.0%) 11.3
56.1 (12.9%)
(57.1%) From 20 to 64
40
41.9
(47.6%)
20
22.0
36.0 Under 20 12.4
(17.3%)
(36.6%) (14.0%)
0
196519701975198019851990199520002005201020152020202520302035204020452050205520602065 (CY)
15
Demographic Change
<Ratio of People Older than 65 years to the Total <Japan’s demographic composition>
(%)
Population>
40 Total Total
Total population population
Japan Total
population 126.9 127.0
123.6 population
120.7
35 14.9 22.0
Total Total
(12.0%) (17.4%) 33.1
Germany population population
Population (million) / component ratio
98.3 (26.1%)
36.6 97.1
30 (30.3%)
6.2
(6.3%)
France
25 U.K.
Japan:23.0 37.7 Age 65
China (38.8%) and
76.2
Germany:20.8 U.S. (61.7%)
over
56.1 78.9
20 (62.1%)
(57.1%) 71.8
France:16.8 (56.6%) 65.6
(54.4%)
15
Age
U.K.:16.6 46.4 20‐64
(47.8%)
10
U.S.:13.1
36.0 32.5
(36.6%) (26.3%) 26.0 22.0
(20.5%) 18.5
5 China:8.4 (17.4%) 13.0 Age 19
(15.3%)
(13.4%) and
under
1965 1990 2000 2014 2025 2050
0
2010 (Source) Demographic composition from 1965 to 1990 according to the “National population census”
1950 1970 2000 2030 2050
(CY) conducted by the Ministry of Internal Affairs and Communications, and data for 2014 onwards
(Source) Japan 1950‐2010: “National Census” (Ministry of Internal Affairs and Communications) according to “Japan’s demographic composition in the future (estimation as of January 2012)”
2011‐2050: “Japanese Future Demographic Projections” (National Institute of Population and
Social Security Research) (January, 2012) issued by the National Institute of Population and Social Security Research.
Other countries: “World Population Prospects: the 2012 Revision” (United Nations)
16
Demographic Challenges
• In 2025 the first baby boomers (born in 1947-49) will become 75 years old and over (“late-stage elderly citizens”). It is
estimated that the benefits regarding medical and long-term care are going to increase considerably.
Aged 75 and over :14% Aged 75 and over : 18% Aged 75 and over: 20%
100 100 100
90 90 90
80 80 80
75 years old:
70 70 Aged 65-74: 12% 70 Aged 65-74: 13%
Aged 65-74 :14%
65 years old:
60 60 60
50 50 50
40 40 40
30 30 30
Aged 20-64: 55% Aged 20-64: 54% Aged 20-64: 52%
20 years old: 20 20 20
10 Aged 19 and under: 17% 10 Aged 19 and under: 16% 10 Aged 19 and under: 15%
0 0 0
0 1 2 3 0 1 2 3 0 1 2 3
(Note) The second baby boomers are those who were born in 1971-74.
(Source) National Institute of Population and Social Security Research “Japanese Future Demographic Projection (April 2017)”
17
Burden of Social Security Benefits
For 75 or over, medical and long-term care expenditures are significantly higher than the younger
generations (So is government contribution per capita). Given the increase in the population aged
75 or over, streamlining and prioritizing medical and long-term care costs is inevitable.
Number and ratio
Medical Care (CY2014) Long‐term Care (CY2014)
to total population
Long‐term care
Medical care benefits per
benefits per Public aid
per capita capita Public aid
CY2014 CY2025 capita Figures in
(Aged 64 or under per capita
(Aged 64 or under :¥25 thousand) parentheses: Ratio of
:¥180 thousand) certification of long‐
‐2 mil people term care
22.5trillion yen
(2.9%)
140.2~140.6 trillion yen
(21.7~21.8%) 25.8trillion yen
Long-term care (3.3%)
121.3 trillion yen 1.7 times
(21.5%) 17.7trillion yen
(2.7%)
14.6 trillion Long-term care 15.3trillion yen
Others 1.4 times 66.7~68.5
yen(2.6%) (2.4%) Medical care
10.7trillion yen 1.4 times
trillion yen
Long-term care
(1.9%) Medical care (8.4~8.7%)
47.4~47.8
1.2 times
trillion yen
39.2trillion yen
Medical care (7.3~7.4%)
(7.0%)
Pension
Pension 1.2 times
1.1 times 73.2trillion yen
56.7trillion yen 59.9trillion yen (9.3%)
Pension
(10.1%) (9.3%)
GDP GDP
1.14 times 1.22 times
2018 2025 2040
GDP 564.3 trillion yen GDP 645.6 trillion yen GDP 790.6 trillion yen
(Source)Cabinet secretariat, Cabinet Office , Ministry of Finance, Ministry of Health, Labor and Welfare
19
Financial resources of Social security expenditures
Child Child Rearing Long-term care Employment Workers compensation
allowance allowance Insurance. insurance
10/10※1
17.2%
Local
13.8% Gov.
(15.1%)
Social insurance
1/4
1/4 contributions
1/2 1/2 1/2
1/2 65歳以上:
13.8% Local 75歳以上:1/10
75歳未満:4/10 23/100
(15.1%) 40~64歳:
Gov. 27/100
(
9/100 83.6%
1/12 1/8
3/4 1/12
National 1/8
55.2%
(60.5%) 1/2 government
1/2 41/100
1/3 1/4
1/4 16.4%
Basic Employee’s
pension pension
20
Characteristics of Japan’s social security system
21
Increase in Social Security Benefits
Fiscal Resource
Benefits ¥117.2 trillion
¥121.3 trillion +Asset Income
(trillion yen) 116.9
×
Asset Income, etc.
Long‐term Care, Burden of
Social Security 47.7 Welfare, etc.
25.3
Local
Governments
100
Benefits (of which, Long‐
term Care 10.7)
13.8 trillion
Burden of
Central
Government
80 Medical care 33.1
39.2
Revenues of Tax
and Government Bonds
68.
60 9
16.2
×
47.4
40
39.
Social
Contributions
5 Insurance Pension 70.2
Contributions 56.7
20
0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 (FY) FY2018
13 14 15 16
(Source) National Institute of Population and Social Security Research “The cost of Social Security Benefits”, FY2018: Ministry of Health, Labour and Welfare (Based on Initial Budget).
22
3. Budget Process and Fiscal Institutions
23
Budget process in Japan
• Fiscal Year: April – March
• Annual process (Budget of Fiscal Year X)
Date Process
April to June Cabinet decision on Basic Policy on Economic
(in Year X‐1) and Fiscal Management and Reform
July to August Cabinet decision on the budgetary request
guidelines for requesting ministries
August 31 Submission of budget requests from the
ministries to MOF
late December Cabinet decision of the draft budget
January Submission of the draft budget from the Cabinet
(in Year X) to the Diet
by end of March Diet approves the budget (Lower House =>
Upper House) 24
Budgeting Process in detail
Fiscal Year (FY): April to next March
April
Policy Discussion at CEFP(Council on Economic and Fiscal Policy)
~
June Basic Policy on Economic and Fiscal Management and Reform
(including “Integrated Economic and Fiscal Reforms”) (approved by Cabinet)
Economic and Fiscal Projections for Medium to Long Term Analysis(decided by Cabinet)
September
Discussion between MOF and line ministries
~
November
Economic and Fiscal Projections for Medium to Long Term Analysis(decided by Cabinet)
I. Roles of the Council
i. In response to inquiries by the Prime Minister, carrying out surveys and discussions on important
economic and fiscal policies (e.g. Basic Policies for Economic and Fiscal Management and Reform,
Basic Principles of Budget Formulation).
ii. In compliance with inquiries by the Prime Minister and/or responsible ministers, examining and
ensuring consistency among important economic policies.
iii. Advising the Prime Minister on the above issues.
If Cut :▲B
Cut by 10% : ▲A
“Baseline“
Primary
Expenditure
FY2018 Pensions, Non-
Local Allocation Discretionary Discretionary
Budget Medical care,
(74.4 trillion) Tax Grants Expenditures Expenditures
etc.
FY2018: 15.5 trillion FY2018: 31.5 trillion FY2018: 14.7 trillion FY2018: 12.7 trillion
Note: The expenditures in relation to the Comprehensive Reform on Social Security and Tax, including expansion of social security services in
parallel with the consumption tax hike, will be examined in the budget process. In this process, revenues of the consumption tax and
prioritization of the social security benefits are duly considered.
28
Decision making in Japan (Japanese political system)
• Parliamentary Cabinet System
• Authorizing the policy in the government
• Cabinet decision
(budget drafts, law drafts, policy direction・・・)
• Pre‐discussion/ pre‐adjustment with the ruling
(majority) parties
29
Fiscal principle
• Approval by the Diet
• Article 83. The power to administer national finances
shall be exercised as the Diet shall determine.
• No taxation without law
• Article 84. No new taxes shall be imposed or existing
ones modified except by law or under such conditions
as law may prescribe.
• All expenses must be appropriated in a budget
• Article 85. No money shall be expended, nor shall the
State obligate itself, except as authorized by the Diet.
30
Fiscal principle (cont’d)
• Single fiscal‐year principle of budget
• Article 86 of the constitution
The Cabinet shall prepare and submit to the Diet for its
consideration and decision a budget for each fiscal year
• Independence of the fiscal year
• Expenses in each fiscal year shall be paid with a revenue
of the fiscal year.
Cf. Some exceptional expenses are stipulated in the public
finance act
31
Budget approval process in the diet
• Fiscal year starts with April 1st
• Make every effort to have the budget draft
approved by the end of march.
• Debate and negotiation between majority parties and
opposition parties
• The supremacy to the lower house, as follows,
“Upon consideration of the budget, when the House of Councillors makes
a decision different from that of the House of Representatives, and when
no agreement can be reached even through a joint committee of both
Houses, provided for by law, or in the case of failure by the House of
Councillors to take final action within thirty (30) days, the period of recess
excluded, after the receipt of the budget passed by the House of
Representatives, the decision of the House of Representatives shall be the
decision of the Diet”
32
Budget approval process in the diet (cont’d)
• Middle of Jan.; Submission of budget draft to the diet
• Late Dec. ; Deadline for the government decision
• August 31st ; Submission of budget request to MOF
• Before submission, each ministry explains its budget requests to its
relevant division meeting of majority parties.
• MOF discusses budget requests with each ministry
• After examining, with taking account of both the policy direction of the
cabinet and the fiscal situation, MOF tries to reach agreement on budget
draft with each ministry, which makes coordination with relevant party
division.
33
Budget approval process in the diet (cont’d)
• In order to make a budget in the desired direction, the Government tries
to control the amount of the initial budget expenditure and/or that of
bond issues.
• The MOF elaborates budget requests guideline for the next fiscal year which
each ministry must follow in submitting them to the MOF.
• For example, since the social security expenditure structurally and
automatically increases, by putting a cap on the increase of budget, debates
on restraining the increase of SSE will be held during examining process.
• But in many cases the restraining of the increase of SSE needs to change the
relevant act which requires the expenses.
• Before the cabinet makes decision on the matters with budgets,
debates and decision in the Council on Economic and Fiscal Policy
(CEFP) will be needed.
• 2018.6.15 “Basic Policy on Economic and Fiscal Management and Reform
2018”
34
4. Recent Efforts for Economic and Fiscal
Sustainability
35
Medium-Term Fiscal Consolidation Plan (2015)
Fiscal Consolidation Target
• To achieve a primary surplus of the central and local governments by FY2020; and at the same time steadily reduce the
public debt to GDP ratio.
2. General expenditure* of the central government: continuing the trend of the past three years under the Abe Cabinet until
FY 2018 (i.e., increase of approximately 1.6 trillion yen over the next 3 years). * = Primary expenditure – Local allocation tax grant
4. Expenditures of the local governments: Will be controlled in line with the efforts of the central government. The total
amount of general revenue shall be maintained substantially at the same level as in the FY2015 Fiscal Plan of Local
Governments until FY2018, and not below.
36
The Interim Review (March 29, 2018)
Primary Balance
Leakage Analysis of Progress toward Benchmark for FY2018
(Percent of GDP)
- 1% Benchmark for
- 5.6 tn yen ②Supplementary FY2018
budgets
‐0.4% (‐2.5 tn yen)
①Efficiency gain
through
expenditure reforms
+0.7% (+3.9 tn yen) ③ Slower growth Projection for FY2018
- 1.7% of tax revenues at the onset of the
- 9.5 tn yen ‐0.8%(‐4.3 tn yen) current fiscal plan
Slow economic
recovery due to weak (without expenditure
world economic growth reforms)*
etc. ④ Deferred
Consumption tax
hike
‐0.7%(‐4.1 tn
- 2.9% yen) Current projection
- 16.4 tn yen for FY2018**
Expenditure Revenue
factor factor
(Source) Cabinet Office “Economic and Fiscal Projections for Medium- to Long-term Analysis”(Jan 23, 2018 & June 22, 2015)
(*) The economic revitalization case. In the projection, on the expenditure side, the spending reform in FY2016 is taken into account, that of FY2017 and 2018 are not reflected.
On the revenue side, the consumption tax hike to 10% in April 2017 is assumed.
(**)The economic growth achieved case. In this projection, the spending reforms of FY2016, 2017 and 2018 are taken into account and the consumption tax hike to 10% in October
2019 is assumed.
37
Main points of the New Plan to Advance Economic and Fiscal Revitalization
(Cabinet Decision in June 15, 2018)
Fiscal consolidation target
By FY2025 Achieve a primary surplus of the national and local governments
Non-Social security
Expenditure
Continue the efforts of expenditure reforms thus far in the Abe Cabinet
Expenditures of the The total amount of the general revenue shall be maintained substantially at the
local government same level as in the FY2018 Fiscal Plan of Local Governments, and not below
38
Main points of the New Plan to Advance Economic and Fiscal Revitalization
in the Basic Policies 2018 (Cabinet Decision in June 15, 2018)
Firmly maintain the principle of “no fiscal consolidation wi thout economic revitalization” and
accelerate and expand the three pillar-reforms of “overcoming deflation/economic
revitalization”, “expenditure reforms,” and “revenue reforms.”
Mechanisms to integrate fiscal consolidation target and annual budget formulation for FY 2019 to FY2021
* The increase due to population aging is composed of a fluctuation associated with a demographic change and a variation owing to
the “macroeconomic slide” mechanism of the public pension system. The former reflects an expected increase in the number of the
elderly in respective years, and the latter reflects an actual result. The government will continue the efforts of expenditure reforms on
this basis, as in the past three years.
39
Main points of New Economic and Fiscal Consolidation Plan in the Basic Policies 2018
(June 15, 2018 Cabinet Decision)
Mechanisms to integrate fiscal consolidation target and annual budget formulation for FY 2019 to FY2021 (cont.)
In case a permanent revenue increase is secured through a systemic reform in order to address a rise in truly
needed fiscal demand, that is to be considered in implementing expenditure reforms.
40
Economic and Fiscal Projections for Medium- to Long-term Analysis (Cabinet Office)
(January 30, 2019)
Projected Primary Balance
Fiscal Year Primary Balance (in trillion yen) in GDP terms (%) Note
2019 -14.6 -2.6
Economic Growth
2025 -1.1 -0.2
Achieved Case Target: Primary Surplus
Baseline Case -6.8 -1.1
‐3.0% ‐2.6%
‐2.8% 160.0%
166.6%
‐4.0% 150.0%
Economic Growth Achieved
156.2%
Target: Primary
Case Economic Growth Achieved Case
成長実現ケース
‐5.0% ‐5.5% 140.0%
Baseline Case Intermediate Indicator: ‐ Baseline Case
1.5%)
‐6.0% 130.0%
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
(FY) (FY)
41
Achieving Japan’s Economic Revitalization and Fiscal Consolidation
Basic Policy2018
(June.15, 2018 Cabinet Achievement of the
Human Resources
Decision)
Development
virtuous economic cycle Achievement of fiscal
Revolution
• Reducing expenses for * Cooperation among consolidation targets
higher education labor, management,
and the government
• Making preschool education
* Raising minimum Wage
effectively free wages * Shifting to
• Promote the Plan for * Support R&D and social security • Aim to realize a surplus
Raising Children with Peace capital investments Capital system for all
in the primary balance
of Mind * Tax system to spur investment generations
• Raising wages for childcare wage hikes and for the national and
and long-term care workers productivity
• Reforms of universities * Expansion of local governments by
• Recurrent education business succession
Shifting to social security tax system FY2025, and
system for all
generations simultaneously aim for a
Realizing a society in Strengthen the Eliminate concerns stable reduction in the
which all citizens are potential growth over the future
dynamically engaged debt-to-GDP ratio.
Supply System Consumption
Innovation • Securing sustainability
Corporate
• Investments that dramatically profits of social security
boost productivity Productivity
• Innovations for the fourth system
industrial revolution
Capital investments and
investments in human
resources toward
boosting productivity
Increase in
Patients go to hospitals and clinics too often…
medical and
long-term care
Doctors are incentivized to take as many patients as possible… expense
Reform Principles
Efficient and comprehensive system to Public assistance for large risks, while self-
provide medical services help for small risks
Burden sharing based on ability to pay Appropriate price adjustment for medical
(including financial asset), not age fees, long-term care fees, and drug price
43
Structure of current pension system(revised in 2004)
○ Reforms toward building the long-term sustainability and ensuring reliability of pension system were
implemented in the 2004 system revision under ideas of securing the benefit level appropriate as public
pension and avoiding placing excessive burdens on future working generations.
○ In particular, following changes and verifying soundness of pension finance (actuarial variation) at least
once every 5 years was decided to be implemented.
1. Raising contribution by the state of Basic Pension benefits to half
2. Increasing insurance premiums under an established upper limit
3. Introducing a mechanism(macroeconomic indexation) that automatically adjusts the level of benefits
within the available resources
〔burden〕 〔benefit〕
Raising contribution by the state of Basic Automatically adjustment of pension amounts by
Pension benefits to half macroeconomic indexation Increase of
※Securing stable financial resources by using prices and etc.
⇒ A mechanism has been implemented that automatically
revenue of consumption tax hike (5% to 8%)
adjusts the values of pension amounts, thereby
Rate of
permitting pension benefits to be sufficiently financed indexation
Utilization of National Pension reserves within available financial resources in an increasingly
aging society with a low birthrate. Percentage of
Increasing insurance premiums adjustment to pension amount
under an established upper limit
fixed!
Insurance State
premium Reserves contribution Pension amount
income
44