I consider it a great honour to receive unexpectedly the Imperial Command to assume the important office of Minister of Finance and to explain
to you, in that capacity, the outline of the budget for the 1940-41 fiscal year as well as the current economic conditions of the country.
In order to accomplish the great task of establishing a new order in East Asia in conformity with our immutable policy in dealing with the China affair, it is necessary for the nation, in complete unison, to make every possible effort toward the ensuring of an efficient operation of our financial and economic system. It is to be particularly noted, in this connection, that the international situation, which culminated in the current European conflict, has been very complex and intricate and that its developments are not merely difficult to foresee but may have no small effect upon our economic and financial structure. To cope with this state of things, therefore, we must closely follow such developments and take appropriate and effective measures accordingly.
Financial and economic policies of Japan, in these circumstances, should aim primarily at the repletion of national defence and the fostering of national strength, at the same time ensuring stability of the livelihood of the people so that there may be no obstacles in the way of undertaking the necessary home-front activities.
For the realization of these basic policies, it is most essential to bring the entire strength of the nation into full play, to strengthen the national wartime stand, to carry out measures necessary for the expansion of productive power and the promotion of export trade, to successfully execute policies relating to supplying the demand for raw materials, commodity prices and public loans, and to establish a comprehensive programme coordinating the economies of Japan, Manchoukuo and China, thus creating steady and sound conditions in our economic life.
With respect to the budget estimates for 1940, the Government have decided to introduce to the Diet those formulated by the preceding Cabinet. Certain additional estimates, however, are expected to be submitted later for really urgent and unavoidable expenditures.
The self-balanced, estimated revenue and expenditure for the 1940-41 fiscal year total in round figures 5,822,000,000 yen, representing an increase of 1,018,000,000 yen over the preceding fiscal year.
To explain the estimated revenues, they may be recapitulated roughly into three categories: Taxes and other ordinary revenues representing 4,076,000,000 yen; surplus brought forward from the preceding fiscal year, 75,000,000 yen; and receipts from bond issues, 1,671,000,000 yen.
When compared with the corresponding estimates for the last fiscal year, we note a rise of 1,084,000,000 yen coming chiefly from an additional 901,000,000 yen in the tax receipts. Of the latter sum 527,000,000 yen represents a gain through the proposed revision of the taxation system and 374,000,000 yen a natural increase. Other gains are 83,000,000 yen derived from profits of Government monopolies and 25,000,000 yen from incomes of State-owned forests.
In drafting the budget for the General Account, the requirements of the Emergency Military Expenditures have been constantly kept in mind and every possible endeavour has been made to economize on expenditure, all the while studying most carefully the relations between materials, capital and labour, placing primary importance upon the attainment of the ultimate
purpose of the China Affair. Acting on this principle, the initiation, strengthening and expansion of various measures and undertakings deemed absolutely essential under the current emergency have been provided for and those items representing non-urgent projects eliminated. Economy has also been exercised in the continuation of undertakings already authorized. Besides the allocation of 970,000,000 yen in connection with the repletion of national defence, the new appropriations include 89,000,000 yen to cover expenses for soldiers' aid, 140,000,000 yen for expansion of productive power, 26,000,000 yen inconnection [sic] with economic control, 16,000,000, 11,000,000 and 15,000,000 yen for promotion of foreign trade, shipping and civilian aviation respectively, while 35,000,000 yen are to cover the costs of settling colonists in Manchoukuo.
On the other hand, a sum of 627,000,000 yen was saved by either reducing or deferring expenses in connection with previously authorized undertakings and through reduction of expenditure relating to the dispatching of military and naval forces to China.
The Government have decided to abolish the temporary grants to the local governments which have been in force since the 1937-38 fiscal year, as the proposed reform of the taxation system is realized. Instead of the grants, the Government have formulated a system under which certain new taxes are to be created, and the receipts allocated to the local governments and municipalities. To take care of this the Government are to set up a Special Account. Moreover, the Government will disburse 277,000,000 yen in favour of the local governments and municipalities from the General Account.
Reference should also be made here to the transfer of 600,000,000 yen to the Special Account of Emergency Military Expenditures, which amount represents estimated increases in receipts from the taxation reform and profits from government monopolies. The deduction of this amount and the 277,000,000 yen mentioned above from the estimated annual expenditure leaves the net total of the budget at 4,945,000,000 yen.
Deficits for the 1940-41 fiscal year will be met by bond issues, comprising 2,000,000 yen of 1923 Earthquake Reconstruction Bonds, 13,000,000 yen Highway Bonds and 1,654,000,000 yen Red-Ink Bonds. There will be no issue of Manchurian Incident Bonds as the Special Account in this connection has been abolished in view of the restoration of peace and order in Manchoukuo.
With respect to special accounts, the same principles governing the compilation of the General Account has been applied to their drafting. The estimates for the Special Accounts for Chosen, Taiwan, the Leased Territory of Kwantung, Karafuto and the South Sea Islands have, however, been increased over those of the preceding fiscal year. The estimated additional zevenue [sic] can be accounted for by the increase in tax yields, including those resulting from the taxation reform. While on this subject, I want to call your attention to the fact that a sum of 50,000,000 yen has been transferred from the Special Account of the Government-General of Korea to the Special Account of Emergency Military Expenditures; 23,000,000 yen from the Special Account of the Government of Formosa; 12,000,000 yen from that of the Bureau of the Kwantung Leased Territory; 50,000,000
yen from that of the Imperial Railways and 17,000,000 yen from that of Communications Enterprises. These, in round figures, total 160,000,000 yen, or some 33,000,000 yen more than in the preceding fiscal year.
The full bond issue is estimated at 437,000,000 yen, of which 199,000,000 yen will be to the Special Account of the Government-General of Korea, 6,000,000 yen to the Government of Formosa, 62,000,000 yen to the Imperial Railways, 20,000,000 yen to Communications Enterprises, and 150,000,000 yen reserved to Government Investments.
The total amount of the Special Account of Extraordinary Military Expenditures for the next fiscal year is estimated at 4,460,000,000 yen, of which 2,973,000,000 yen is for the Army, 737,000,000 yen for the Navy and 750,000,000 yen destined to the Reserve Fund.
The sources of revenue to cover these extraordinary expenditures are: 600,000,000 yen to be transferred from the General Account, 160,000,000 yen from various special accounts, 25,000,000 yen from donations and miscellaneous receipts and 3,673,000,000 yen from public loans. The last item, together with the bond issues of 1,671,000,000 yen on the General Account and 437,000,000 yen on various special accounts, means that the Government will have to issue nearly 5,782,000,000 yen of new bonds during the 1940-41 financial year, a decrease of 142,000,000 yen when compared with the corresponding figure under the 1939-40 budget.
The reform of the existing national and local taxation systems has been a long-pending question. The present programme aims at equalizing the burdens borne by the people, at harmonizing the relation between the taxation system and urgent economic measures, at increasing tax receipts, and at setting up a more flexible mode of operation. Particulars of the reform programme, however, will be fully explained when the bills concerned are presented for your deliberation. With regard to increases through the proposed reform, they will amount in respect of the national tax to 814,000,000 yen in a normal year but to only 604,000,000 yen for the initial year, these figures including the estimated tax receipts to be allocated to Local Governments and Municipalities. As the taxation reform entails, on the other hand, an increase in the amount to be remitted to local finances, the net increases to the Treasury are estimated at 550,000,000 yen and 373,000,000 yen respectively for the normal and the initial years. Revision made in sales prices of tobacco in November last may be mentioned in this connection. Through this measure approximately 60,000,000 yen will be added to this source of revenue in the coming fiscal year.
Before I conclude, I want to briefly review the general conditions of our economic position under the China Affair.
The money market under the current emergency has gradually become busy, reflecting increasingly brisk economic activities; calmness has characterized the situation, however, capital having in general been smoothly accumulated and absorbed. Government payments have reached enormous sums, but there has been a considerable return of funds thanks to the progress of the savings encouragement campaign and other related measures.
The amount of bank deposits registered a remarkable increase of 5,974,000,000 yen, while postal savings deposits also expanded by 1,199,000,000 yen during the year 1939.
There was a stringent tone in the short-term money market and money rates advanced somewhat on account of greater demands for capital caused by the promotion of exports in connection with the European conflict; however, the year-end witnessed an appreciable calmness. The market for loan flotations was very active during 1939, with the volume of fresh debentures totalling 2,121,000,000 yen, which is unusually large.
The national bond issues during the last fiscal year amounted then to 5,261,000,000 yen, of which 4,700,000,000 yen, or 89 per cent, has been assimilated. There was some reduction in the rate of bond assimilation during the ltter [sic] half of the year under review because of the activity in the debenture market, increased bank loans and a brisk demand for funds. When the condition is viewed for the whole of the year, however, the percentage of absorption is quite high and satisfactory.
As has been stated, the estimated bond issues during the 1940-41 fiscal year will represent a considerable sum, and the necessity for its smooth assimilation will become increasingly important. The Government are prepared to take every possible step to effect this by mobilizing all the capital funds at their disposal including the resources of the Treasury Deposit Bureau, and by adjustment of private funds. Most essential, however, is the appreciation on the part of all members of the nation of the import of the current emergency, based on which they will exercise frugality and increase savings, thereby rendering possible the increase of the capacity of bond assimilation. Availing myself of this occasion I should like to call their attention to the necessity and importance of their cooperation in this great task.
Adjustment in the demand and supply of capital held by private interests has been conducted in accordance with the Temporary Capital Adjustment Law, and the result has been on the whole satisfactory; the amount of capital invested in enterprises last year aggregated 4,214,000,000 yen, all of which has been used for purposes of expansion of productive power, and such investments which were deemed most necessary. The public bonds issued hereafter will continue to reach a considerable amount, and as the exercise of greater care appears to be necessary in regulating the relations between capital and production, it becomes imperative on the part of the Government to take stricter measures to adjust the demand to the supply of capital. It was in accordance with this requirement that steps were taken at the end of last year for controlling the advance of working capital by the banking institutions, while strengthening control in the operation of the Temporary Capital Adjustment Law.
The next point to be noted is the fact that the amount of convertible notes issued of late has been considerably increased. Last year they averaged 2,376,000,000 yen, or 450,000,000 yen more than in the previous year. The trend of increase in the note issue has become more marked since thel atter [sic] half of last year, reaching a peak of 3,817,000,000 yen at the end of December 1939. Since the commencement of the present year, however, the withdrawal of notes has been going on smoothly.
The increase of the note issue, which has been due to the expansion of productive power, greater movement of commodities and change in method of transaction, cannot be avoided to a certain extent today when the scale
of economic activities has been enlarged. However, as the immoderate inflation of notes in circulation should be checked as much as possible, the Government are prepared to take steps accordingly. For this purpose, general economy in consumption and promotion of savings will be encouraged again more than ever, regulation of capital funds and adjustment of prices will be enforced, and other necessary measures taken. But without the sincere cooperation of the people such an object will not be attained.
Commodity prices have been rising since the outbreak of the China affair, and various measures had been taken to check the upward movement. However, with the outbreak of the second European War in September last, a further trend in this direction has been feared. The Government, therefore, have been compelled to invoke the National General Mobilization Law as an emergency measure, and to issue Imperial Ordinances for the control of prices as well as salaries and wages. In the application of this law and of the ordinances, utmost care has been taken to ensure the smooth supply of commodities in accordance with the low-price policy. Particularly, in the matter of daily necessaries, the Government will spare no effort to take appropriate measures to eradicate the feeling of uncertainty in the life of the people. It is an earnest desire that the entire nation, recognizing the importance of the problem of prices in wartime, should cooperate with the Government toward the full realization of their policy.
Foreign trade during the last year resulted in 3,932,000,000 yen in exports and 3,127,000,000 yen in imports, excess of exports over imports amounting to no less than 805,000,000 yen. As compared with the previous year, exports gained 35 per cent and imports about 10 per cent, the favourable balance being increased by approximately 745,000,000 yen. The figures thus show a remarkable improvement of trade. The improvement comes mostly from the increase of exports to Manchoukuo and China. In the trade with other foreign countries, exports amounted to 1,850,000,000 yen in value, which is an improvement of 20 per cent over the previous year; nevertheless, excess of imports amounted to 456,000,000 yen. Such being the case, we are called to make further efforts for the promotion of our foreign exports. On the other hand, increased production of gold is urgent in order to expand the importing capacity; the collection of gold held by the people should be more thoroughly carried out in this connection. The Government expect to adopt appropriate measures for the purpose.
With respect to the rate of foreign exchange, the value of the yen, as is well known, had been based on British currency at the rate of 1 shilling 2 pence until October last, when a shift was made to the United States currency and the rate pegged at 23-7/16 cents. Thus the international value of the yen, the stability of which is most important not only in trade relations but also in keeping prices steady, has become subject to the least possible fluctuation. To maintain the value, various measures will be taken to support the balance of international accounts.
To establish a relation of mutual assistance is the fundamental policy behind the construction of a new order in East Asia. It is most satisfactory, therefore, to know that Manchoukuo is doing all it can to promote industrial expansion based on a comprehensive plan embracing the three countries Japan, Manchoukuo and China, and to augment economic power with a
view to realizing cooperation with Japan. In China, industrial development is well on the way in accordance with the same policy and plan.
Since the occurrence of the China Affair, our national economy has been confronted with an unprecedented situation.Thanks [sic] to the combined efforts of the Government and people, it has carried on its operation quite smoothly in all its phases. But in order to rightly settle the China Affair, on the one hand, and secure a firm footing on the ground of international competition, on the other, all the members of the nation must be prepared to go through any and whatever hardships that may be demanded of them. Without this determination, the great task of accomplishing the establishment of the new order in East Asia will not succeed.
In conclusion, I earnestly wish you will give speedy approval to the budget submitted to you.