On October 7, “The Basic Policy for the Third Supplementary Budget for Fiscal 2011 and Reconstruction Tax Sources” (tentative translation) was approved by the Noda Cabinet following a special meeting of the Cabinet. The outline of the proposal is as follows

Regarding the Third Supplementary Budget for Fiscal 2011

The Third Supplementary Budget will add a total sum of around 12 trillion yen’s worth of spending. Of that approximately 9 trillion yen will be for expenses relating to the Great East Japan Earthquake (not including monies needed to cover the expenditure from special pension revenue sources)

In order to engage in substantial disaster reconstruction this supplementary budget includes approximately 11 and a half trillion yen (around 11.6 trillion yen) for Great East Japan Earthquake related expenses, including that for reconstruction projects (around 6.1 trillion yen), disaster-related financing (around 0.6 trillion yen), national disaster protection measures (around 0.5 trillion yen), decontamination (0.2 trillion yen), increase in tax allocation to local governments (around 1.6 trillion yen), and monies to cover revenue used from special pension revenue sources (around 2.5 trillion yen). In order to finance these expenses, we will implement cost-cutting measures (around 0.22 trillion yen) and issue reconstruction bonds (around 11.4 trillion yen).

The budget also includes a sum of around 0.3 trillion yen for projects relating to damage occurred following Typhoon Talas. In order to finance this we will obtain revenue from non-tax sources (around 0.1 trillion yen) and reduce the contingency funds for the recovery and reconstruction from the Great East Japan Earthquake (around 0.2 trillion yen).

The budget also includes a sum of around 0.05 trillion yen to be used to set up a fund to support specific patients infected with Hepatitis B. This will be financed by securing non-tax revenues (around 0.05 trillion yen).

Regarding the Ongoing Procurement of Reconstruction Revenue Sources, Including those for the Third Supplementary Budget

The administration will endeavour to secure revenue from non-tax sources such as by selling shares in Japan Post, and if such revenue is secured, it will be included as revenue in future reviews of the reconstruction revenue framework. If as a result of such a review, the reconstruction revenue available exceeds the increased costs of projects, then the temporary tax measures will be reduced.

The scale of recovery and reconstruction projects and the budgetary resources allocated to them (the reconstruction revenue framework) during the intensive reconstruction period will be reviewed in accordance with a basic policy on reconstruction following a certain period of time.

With regard to the remaining approximately 13 trillion yen in revenue required during the 5-year intensive reconstruction period, we will implement the following temporary tax measures with the assumption that around 5 trillion yen in revenue can be secured from cost-cutting and non-tax revenue sources.

Revenue from non-tax sources will be raised gradually over a 10 year period to reach a total of 7 trillion yen, and as a result the amount required to be raised from tax increases will be 9.2 trillion yen. In order to achieve this, we will (1) with regard to shares in Japan Tobacco, having considered how the government should be involved in tobacco-related businesses, consider revising the obligation placed on the government to hold shares in JT, (2) consider the way in which the government holds shares in energy-related companies, taking energy policy into consideration. By doing so, we intend to sell at the earliest possible date those government holdings of shares that can be sold.

With regard to Japan Post, we will enact postal reform legislation at an early date, and having done so, with reference to the management conditions at Japan Post, sell government holdings in the company as soon as possible. The revenue that can be obtained as a result of selling Japan Post shares will be used to redeem reconstruction bonds, basically for the following 10 year period. In this way, we will further reduce the impact of temporary tax measures.

These revenue measures will, following discussions between the ruling and opposition parties, be set forth in legislation for securing reconstruction revenue.

We estimate that the money gained from non-tax sources such as the sale of government holdings in Japan Post and Japan Tobacco will amount to around 2 trillion yen over the following 10 years.

Outline of the Legislation for Securing Reconstruction Revenue

A special reconstruction income tax will be imposed as a temporary 4% surtax on income tax from January 2013 to December 2022.

A special reconstruction corporate tax will be imposed as a temporary 10% surtax on corporate tax from fiscal 2012 to fiscal 2014.

A special reconstruction tax on tobacco will be imposed as a temporary special charge of 1 yen per cigarette from October 2012 to September 2022.

The issuance period for reconstruction bonds shall be the intensive reconstruction period of five years, and the bonds will be redeemed by fiscal 2022.