Comprehensive Economic Measures

Japan's Comprehensive Economic Measures

April 24,1998

Ⅰ Summary of the Measures

1. Basic Objective

Challenges Facing Japan:
Japanese economy is stagnant and is getting more serious due to the aftereffects of the collapse of the bubble economy and the unfavorable conditions arising both at home and abroad.

With these measures,

• Stimulate domestic demand and promote economic structural reform
• Contribute to recovery and stabilization of the East Asian economy through the recovery of the Japanese economy

2. Enhancing the Social Infrastructure and Tax Reductions

(1) Expanding domestic demand drastically by the budgetary allocation of 12 trillion yen for the improvement of social infrastructure and tax reduction

Improving social infrastructure truly needed in the 21st century:	7.7 trillion yen ($61 billion)
With emphasis on : Environment	1.6 trillion yen ($12.4 billion)
Information and Telecommunications and Science and technology,	1.0 trillion yen ($7.8 billion)
Social welfare, Medical treatment and Education	1.0 trillion yen ($7.8 billion)
Large-scale tax reduction to create effective demand immediately:	More than 4 trillion yen ($31 billion)
Temporary tax reductions (Individual income tax and Individual inhabitant tax)	4 trillion yen ($31 billion)
Policy-oriented tax reductions	approx. 300 billion yen ($2.3 billion)
(Tax credit for Investment and Housing) Cash Benefits	300 billion yen ($2.3 billion)

(2) Revision of the Fiscal Structural Reform Act

• In order to implement these fiscal measures, necessary amendments will be introduced to the Fiscal Structural Act.

(3) Review of corporate taxes and income taxes

Corporate taxes

• The overall corporate tax rates will be set at a level comparable to other countries as soon as possible within the next three years.

Individual income tax and individual inhabitant tax

• A comprehensive review will be started.

(4) Other measures

• Front-loading of the public works planned in the original FY98 budget.
  ------ Over 81% yen of the public works will be contracted in the first half of the fiscal year. (Highest ever level)
• The use of Private Finance Initiative (PFI) to be promoted to inject the private-sector spirit into infrastructure development.

3. Promotion of Economic structural reform

(1) Promotion of economic structural reform, beginning with deregulation

• Determined implementation of deregulation
• Cultivating vigorous venture capital enterprises
• Supporting small- and medium-sized enterprises
• Ensuring stable employment
• Ensuring the implementation of financial reform, "Big Bang"

Establishing a flexible and creative economic structure to meet changing needs

(2) Bringing bad loan problems to a final settlement

• A special committee will be established to bring the problems of bad loans. to prompt and smooth settlement.
• Liquidization of land and credit will be promoted by disposing collateralized land and activating land purchase transactions

4. Assistance to Asian countries

Supporting Asian countries facing economic difficulties:
700 billion yen ($5.4 billion)

• Support for facilitating trade financing, ODA loans to promote economic structural reform of Asian countries, and Support for human resources development
• Measures for the socially vulnerable people
• Supplying Indonesia with about 600 thousand ton of rice

Ⅰ-1 Attachment

Contents of Comprehensive Economic Measures (April 24, 1998)

Ⅰ. MEASURES FOR STIMULATING JAPANESE ECONOMY

	Measures	Amount in trillion yen (US$ in billion)
Total		more than 16 (124)
1. Tax Cuts	Temporary tax reduction (Income tax reduction including the local resident tax)	4.00 ( 31)
	Special tax measures (Business and housing investment)	0.30 ( 2.4)
	Subtotal	4.30 ( 33.4)
2. Social Infra-structure Investment	General public investment	6.00 ( 47.6)
	Indipendent public work projects by local governments	1.50 ( 11.7)
	Disaster reconstruction	around 0.20 ( 1.6)
	Subtotal	around 7.70 ( 60.9)
3. Others	Facilitating circulation of real estate and securities the market and promoting in effective use of real estate	2.30 ( 18)
	Measures for small and medium-sized enterprises	2.00 ( 15.5)
	Job promotion policies	0.05 ( 0.4)
	Subtotal	4.35 ( 33.9)

Ⅱ. MEASURES FOR SUPPORTING ASIAN COUNTRIES

Ⅱ Comparison with the Previous Measures

	Tax Cuts	Social Infrastructure Investment	Others	Amount in trillion yen
'92.8	0	8.6	2.1	10.7
'93.4	0.2	10.6	2.4	13.2
'93.9	0	5.2	0.8	6
'94.2	5.9	7.2	2.1	15.2
'95.4	0	0	7	7
'95.9	0	12.8	1.4	14.2
'98.4	4.3	7.7	4.35	16.35

Ⅲ The Estimated Economic Impact of the Comprehensive Economic Measures

The projection using the multiplier in the "Fifth World Economic Model" of the Economic Planning Agency estimates the effect as approx. 2% of the nominal GDP in one year hereafter.

	Amout		multiplier
Public Investment: Special Tax Cut:	approx.	7 trillion yen 2 trillion yen	X 1.32 = X 0.46 =	approx. 10 trillion yen *1 (approx. 1.9% of GDP) approx.   1 trillion yen *2 (approx. 0.2% of GDP)
Total:	approx.	9 trillion yen		approx. 11 trillion yen      (approx. 2.1% of GDP)

In addition, the effect of special tax measures (investment and housing) is estimated as approx. 0.1% of GDP.

---

Back to Index