I have the honour to explain to you the general features of the 1938–39 budget, its revenues and expenditures, and the general economic situation in this country under the China Affair.
The Government, as you are well aware, in view of the unbending attitude of the Chinese Nationalist Government, has decided to deal with it no longer, but to await the establishment of a new régime in China in order to cooperate with it for fundamental reconstruction in that country. Thus we should be well prepared for the continuation of the present situation and adjust all our policies to meet this state of affairs. Especially in matters of finance and economy the Government and people must act in coordination, and for this special efforts are required.
I believe it to be the fundamental policy of our finance and economy, facing the prospect of prolonged warfare, to be prepared to assure abundant supplies of money and material needed for the struggle while maintaining stability at home. The Government, since the situation became aggravated last year, has adopted various measures for adjusting our finance and economy to the needs of the emergency situation. It intends to continue efforts in order that this policy shall be thoroughly carried out.
In the compilation of the 1938–39 budget, too, the policy has been adopted, in anticipation of prolonged warfare, of concentrating all resources and funds for the satisfaction of military and naval demands. Consumption of all materials connected with munitions in any other capacity than warfare is to be reduced as far as possible. Thus it has been decided that expenditures in all departments except for items necessary to continue the struggle should be kept strictly within what is absolutely necessary and urgent.
The budget compiled in this manner to cover the fiscal year 1938–39 stands at ¥2,876,000,000 in round figures, both in expenditures and revenues.
Comparing this with the budget for the last fiscal year, from which the amount to be transferred to the Special Military Expenses Accounts is deducted, a decrease of ¥40,000,000 is seen in revenue and ¥76,000,000 in expenditures.
In the revenue accounts, regular revenue will be ¥2,023,000,000 in ordinary income and ¥150,000,000 in extraordinary income, totalling ¥2,173,000,000. Comparing this with the revised budget for the last fiscal year, an increase of ¥195,000,000 occurs in the ordinary income and a decrease of ¥82,000,000 in extraordinary incomes, showing a balance increase of ¥112,000,000 in round figures.
This increase in ordinary revenue is estimated on the basis of increases in incomes from taxes, stamps, Government enterprises and Government property. The expected increase in stamp revenue, for example, is ¥172,000,000. These increases will be natural increments due to prosperity in the economic world, while the anticipated diminution will be due mainly to reduction in the amount of funds to be transferred from special accounts to the general revenue—about ¥61,000,000. This is due to the fact that funds will be transferred to the Special Military Expenses Accounts from the special accounts for certain regions—excepting those for the South Seas—and from the Imperial Government Railways and Communication Services Special Accounts. No transfers will be made from these special accounts to the general revenue.
The ordinary expenditures will be ¥1,640,000,000 and extraordinary accounts, ¥1,227,000,000. Compared with the revised budget for the last fiscal year this will show an increase of ¥137,000,000 in ordinary expenditures and a decrease of ¥214,000,000 in extraordinary expenses.
To explain the main features of expenditure estimates, predetermined plans will be executed for expansion of armaments. At the same time expenses for fresh undertakings too urgent to be postponed have been included. An amount of ¥56,000,000 has been included as necessary for increasing relief and and assistance to soldiers and their families and other funds called for by the China Affair, in addition to funds appropriated by the War and Navy Departments for their own measures toward the same end. Other important items are expenditures for air defence, agricultural and mining development, liquid fuel, training of technicians and experts, civil aviation, etc.
In regard to subsidy for local financial readjustments, ¥100,000,000 is appropriated as in previous fiscal years. Funds in reserve have been increased by ¥37,000,000 to cover budget excesses and expenses
outside the budget, which may be caused by the present Affair.
Aside from these items, strenuous effort has been made to put off or reduce new appropriations in general. At the same time, outright savings and postponement of some ¥141,000,000 in outlays have been made in basic expenses.
It has been decided that deficits in the 1938–39 revenue should be met by bond issues, amounting to ¥694,000,000. Additionally, a bond issue of ¥166,000,000 is expected to cover expenses in the Special Accounts of the Korean Government-General, Imperial Government Railways and Communication Services. The total amount of bond issue, therefore, will be about ¥860,000,000, which, compared with the public bond issue scheduled in the revised budget for the last fiscal year, shows a decrease of ¥190,000,000.
In regard to the supplementary budget embracing the provisional military special accounts, the actual appropriations will be submitted to you later.
As to the question of general revision of both the central and local systems of taxation, the Government has been making inquiries and studies, but the outbreak of the China Affair considerably changed general economic conditions and the capacity of the people to bear tax increases, necessitating postponement of the scheme. As for partial revision, however, the Government has submitted bills revising the existing tax schedule.
It is intended on the whole that most of the military expenses of the China Affair should be covered by public bonds, yet it is thought only proper that the people should bear part of the burden through taxes. Thus the Government is now preparing bills for provisional tax increases for presentation to the present session of the Diet.
I wish to take this occasion to say a word on the situation in economic circles under the China Affair. As to the economic policy of the Government for coping with the present situation, we had occasion in both the 71st and 72nd sessions of the Diet to explain and submit various legislative bills which were approved by you and enforced by us. Fortunately, these measures have yielded good results, due to the enlightened cooperation of the people. Despite the aggravation of the situation since then, I am glad to say that things generally are going smoothly in trade, industry, financing, exchange, commodity prices, etc.
At the outset of the China Incident, a certain measure of stringency was seen on the money market, but thanks to prompt disbursement of Government funds and various other measures, the tight money situation has gradually improved; financing is now more or less active. Especially at the end of last year, capital flowed with a liveliness
rare in recent years. Since then the situation has traced a normal curve and the conditions to date are quite favourable. I am certain that there will continue to be a smooth movement of money.
In respect to the loan market, the opportunity of its reopening likewise has ripened with the recent loosening of money. Already, flotation of debentures has been decided on in some fields. The Government expects a sound and progressive development in the debenture market.
In order that industrial productivity may be increased for the sake of national defence, the Government has laid particular stress on the proper application of the Emergency Capital Readjustment Law and at the same time has sought to assure abundant supply of capital for the national defence industries by underwriting the debentures of the Industrial Bank of Japan with Government funds and by other measures. The Government will continue to encourage thrift in order to effect accumulation of capital, and will strive to apply the Emergency Capital Readjustment Law in such a way as to render the supply-and-demand relationship harmonious.
As a measure to readjust and improve accommodation of small funds to the needy, the Government has decided to present to the present session of the Diet a People's Chest bill, a Pensions Chest bill, and a bill revising the Mutual Loan Companies Law.
Smooth assimilation of bonds is extremely important at a time when large amounts of bond issues are necessary, both from the financial and national economic standpoints. The Government is deliberating most carefully on the proper manipulation of funds in the hands of the Treasury Deposit Bureau and other Government repositories. At the same time, it earnestly hopes that various private financial institutions and the people in general will support and cooperate with the Government policy.
The forthcoming issue of public loans will be underwritten mainly by the Bank of Japan, so as to render easier adjustments in the monetary situation. The sale of public bonds through post offices and of the premium savings bonds inaugurated last year has met with quite encouraging results. The Government, therefore, will issue these bonds from time to time. It also will strive to encourage the habit of thrift on the part of the people by bank deposits and other means in order to accustom them to the habit of holding Government bonds. On the other hand, effort is being made to increase the bond assimilating capacity of various financial institutions in order that the way may be paved for future issues.
Balancing of international payments and maintenance of stability
in foreign exchanges are assuredly basic financial and economic policies. Surveying the exchange situation since the outbreak of the hostilities in China, it is gratifying to note that the Anglo-Japanese one shilling two-pence level has been kept intact. The Government will continue to maintain that level, and for this purpose it will formulate plans for balancing international payments and for promoting export trade, encouraging the production of gold, and will continue to strive for adjustment in importation of general commodities, reduction of invisible trade balance payments, and economy in the use of gold.
As for the state of commodity prices under present circumstances, it is seen that no very marked rise has taken place. This is due to the low price tendency overseas and economization of consumption among the people at home.
Hereafter, however, it is to be noted that with the increase of Government funds in circulation in connection with the China Affair and adjustments in import trade, the price question will grow more and more important. Thus we see the special need of price adjustments and we will take measures to limit consumption, to encourage the use of substitute goods and to increase production of general commodities, taking into account the supply-and-demand relationship of munitions and other important articles. In the distribution of these goods, too, various measures will be taken.
The Government, at the same time, will strive to check hoarding of goods for speculation or profiteering and will, if necessary, expand the scope of the maximum price regulation which is at present in force in regard to some commodities.
The essential point in all these endeavours, however, is that the people themselves should resolve to cooperate with the Government for the sake of national welfare. The nation has made tremendous strides in building up its economic strength but in order to prosecute the policy of prolonged warfare hereafter, it is necessary that this strength should be increased and concentrated toward the attainment of the final goal.
In order that this may be effected without entailing any impairment in the maintenance of national economy, expansion in productive capacity, balance of international payments and adjustment of supply to demand of commodities must be assured. Plans must be carefully laid for coordinated action between the Government and people.
The Government, in striving to execute various concrete measures for these aims, is anxious to avoid any friction arising therefrom. On this point it will do its best, but determination and perseverance
on the part of the people too are the necessary accompaniment of all national progress. So long as the Government and people are wholeheartedly united in this task, I have no doubt but that we shall have nothing to fear in facing the ordeal.
It is hoped that you will give your approval to the budget estimates submitted to you as quickly as possible.