Japanese Public Finance Fact Sheet

Japanese Public Finance Fact Sheet ー FY2010 Budget (Supplementary Data) ー 1. FY2010 General Account Budget 1 2. Highlights of the FY2010 Budget 3 3. Comparison of the Government Budget to a Household Budget 7 4. Trends in General Account Expenditures and Tax Revenues 8 5. Accumulated Government Bonds Outstanding 9 6. Change in the Composition of the General Account Expenditures 10 7. Interest Payments and Government Bonds Outstanding 10 February, 2010 Ministry of Finance

1. FY2010 General Account Budget (1) Breakdown of Expenditures FY2010 General Account Budget amounts to approximately 92 trillion yen. The expenditures of the budget shows that national debt service (expenditures allocated to interest payment and debt redemption for national government bonds), local allocation tax grants, etc. and social security-related expenditures occupy almost 70% of the total expenditures. Refund to the Settlement Adjustment Fund 718.2 0.8% (Unit: billion yen) National Debt Service 20,649.1 22.4% Redemption of the National Debt 10,840.4 11.7% Local Allocation Tax Grants, etc. 17,477.7 18.9% Interest Payment Expenses 9,808.7 10.6% General Account Total Expenditures 92,299.2 (100.0%) Others 10,036.3 10.9% Social Security 27,268.6 29.5% Public Works 5,773.1 6.3% Education & National Science Defense 5,586.0 4,790.3 6.1% 5.2% General Expenditures 53,454.2 57.9% 1 Food Supply 1,159.9 (1.3) Energy 842.0 (0.9) Former Military Personnel Pensions 714.4 (0.8) Economic Assistance 582.2 (0.6) Promotion of SMEs 191.1 (0.2) Miscellaneous 5,196.8 (5.6) Contingencies for Economic Crisis Response and Regional Revitalization 1,000.0 (1.1) Contingencies 350.0 (0.4)

(2) Breakdown of Revenues Tax revenues in FY2010 General Account Budget cover only a bit more than 40% of the total revenues, while the remaining nearly 50% depends on government bond issues, which will pose burdens on future generations. (Unit: billion yen) 将来世代の税負担 Government Bond Issues 44,303.0 48.0% Special Deficitfinancing Bonds 37,950.0 41.1% Construction Bonds 6,353.0 6.9% Income Tax 12,614.0 13.7% General Account Total Revenues 92,299.2 (100.0%) Other Revenues 10,600.2 11.5% Corporation Tax 5,953.0 6.4% Consumption Tax 9,638.0 10.4% Others 9,191.0 10.0% Tax and Stamp Revenues 37,396.0 40.5% Gasoline Tax 2,576.0 (2.8) Liquor Tax 1,383.0 (1.5) Inheritance Tax 1,271.0 (1.4) Tobacco Tax 827.0 (0.9) Customs Duties 756.0 (0.8) Petroleum and Coal Tax 480.0 (0.5) Motor Vehicle Tonnage Tax 447.0 (0.5) Other Taxes 427.0 (0.5) Stamp Revenues 1,024.0 (1.1) 2

2. Highlights of the FY2010 Budget Outline of FY2010 General Account Budget FY2009 Initial Major Expenditures FY2009 FY2010 Change (FY2009 to FY2010) % change (FY2009 to FY2010) Social Security 24,834.4 27,268.6 2,434.2 9.8% Education & Science 5,310.4 5,586.0 275.6 5.2% Former Military Personnel Pensions 787.2 714.4-72.9-9.3% National Defense 4,774.1 4,790.3 16.2 0.3% Public Works 7,070.1 5,773.1-1,297.0-18.3% Economic Assistance 629.5 582.2-47.4-7.5% [Reference] ODA (Gov t Expenditures) (ODA project volume (gross)) FY2010 Initial FY2009 FY2010 (Revenues) Tax Revenues 46,103.0 37,396.0-8,707.0 Includes a reduction of the motor vehicle tonnage tax by 166.0 billion. Other Revenues 9,151.0 10,600.2 1,449.2 Including transfer from the Special Account for Fiscal Investment and Loan Program ( 4,775.2 billion) and transfer from the Special Account for Foreign Exchange Funds ( 2,850.7 billion), etc. (Reference) As for the Special Account for Foreign Exchange Funds, all of the surpluses in FY2009 ( 2,500.7 billion), as well as 350.0 billion of the expected surpluses in FY2010, are to be transferred to the General Account. Changes in Major Budget Expenditures : From Concrete to People 672.2 (1,877.0) 618.7 (1,910.0) -53.4 (33.0) (Unit: Billion yen) -7.9% (Approx. 2%) Promotion of SMEs 189.0 191.1 2.1 1.1% Energy 856.2 842.0-14.2-1.7% Food Supply 865.9 1,159.9 294.0 33.9% Miscellaneous 5,064.2 5,196.8 132.7 2.6% Subtotal 50,381.0 52,104.2 1,723.3 3.4% Local Allocation Tax Grants, etc. 16,573.3 17,477.7 904.4 5.5% Notes Government Bond Issues 33,294.0 44,303.0 11,009.0 Bond Dependency Ratio: 48.0% (FY2009: 37.6%) Construction Bonds 7,579.0 6,353.0-1,226.0 Special Deficit-Financing Bonds 25,715.0 37,950.0 12,235.0 Total 88,548.0 92,299.2 3,751.2 (Expenditures) National Debt Service 20,243.7 20,649.1 405.3 Local Allocation Tax Grants, etc. 16,573.3 17,477.7 904.4 Includes special grants for the newly established child allowance and the existing child benefits ( 233.7 billion) General Expenditures 51,731.0 53,454.2 1,723.3 Social Security 24,834.4 27,268.6 2,434.2 Contingencies for Economic Crisis Response and Regional Revitalization Refund to the Settlement Adjustment Fund 1,000.0 1,000.0 718.2 718.2 Total 88,548.0 92,299.2 3,751.2 (Note) Figures may not add up to the totals due to rounding. (Unit: billion yen) Established Contingencies for Economic Crisis Response and Regional Revitalization ( 1 trillion) Establishment of a ceiling amount for acts of bearing liabilities with the national treasury funds for specified purposes (up to 1 trillion). In total, 2 trillion for economic stimulus measures 3 (Note) National Debt Service, Contingencies, and Repayment of the Fund of Compensation for the Shortfall at Settlement are not included.

Major Policies in the Roadmap of the DPJ Manifesto Item Child allowance Effectively free public high school tuition Pension record problems Phased measures to relieve the doctor shortage, etc. Individual (household) income support for agriculture Abolition of provisional tax rates Elimination of highway tolls Outline Monthly amount: 13,000 per one child No income limitation As for FY2010, local governments and employers will continue their contribution of the existing child benefits within the framework of Child Benefits Law. Central Government will bear the remaining burden. Households that have a student in public high school: Tuition is not collected Households that have a student in private high school: Provides educational subsidies equivalent to tuition costs in public high school (approx. 120,000 per annum) (Extra subsidies are provided to low-income households annual income less than 2.5 million: approx. 120,000; annual income over 2.5 million but less than 3.5 million: approx. 60,000) The central government bears the expenses which are additionally necessary in line with the measures related to public high school. Start collating all computerised pension records with the paper-based records such as lists of insured persons by utilizing electronic image data retrieval system. Create a system so that pensioners can promptly view their own pension records over the Internet. Substantially increasing medical service fees for the first time in a decade. Increasing medical-care expenditures (approx. 400 billion) in medical care for acute hospitalization where the doctor shortage is serious. (fiscal resource: national health insurance drug prices revision) Putting a priority on emergency care, obstetrics, paediatrics, and surgery in reviewing allocation of medical service fees. The unit price in fixed amount of compensation subsidies is 15,000 per 10 ares in model projects for the individual (household) income support system. In addition, changing amount is established. Projects for improvement of self-sufficiency through the use of paddies will be implemented, paying attention to relaxation of drastic changes in each area. Abolition of the existing provisional tax rates for 10 years as for the taxation on fuel. For the time being, however, tax-rate levels are maintained. In light of the need to safeguard people's daily lives, legislative measures to suspend taxation in excess of the regular tax rate in case of extraordinary inflation of oil prices. Abolition of the existing provisional tax rates for 10 years as for the motor vehicle tonnage tax. However, establishing tax rates that the reduce tax burden equivalent to half of the central government's share of revenues in provisional extra tax rates. Implementing such measures as stepwise expansion of toll discounts and introduction of a unified toll system, and while assessing their social impact, proceeding step by step with the progressive elimination of all highway tolls. In this, reduction of the burden on light motor vehicles. When implementing the pilot programs in the first year, it is necessary to pay careful attention to the confines of routes, other transportation facilities such as railways, and worries about traffic jams. Employment measures Relaxing the applicable scope of employment insurance from "a person likely to be kept employed over 6 months" to "a person likely to be kept employed over 31 days." Increasing 350 billion in the FY2009 second supplementary budget for state contribution of unemployment benefits. 4

Ensuring Resources of Major Policies in the Roadmap of the DPJ Manifesto Implementation of a child allowance 1.7 trillion (Note 1) Individual (household) income support for agriculture 0.6 trillion Effectively free public high school tuition 0.4 trillion Abolition of provisional tax rates Elimination of highway tolls Pension record problems Employment measures 0.2 trillion 0.1 trillion 0.1 trillion 0.0 trillion Total: 3.1 trillion Need to ensure resources due to realizing new measures Realizing the all-around reworking of the budget through the scrutinizing of public projects by the GRU, and ensuring necessary resources without being so quick to rely on unbridled issuing of government bonds. Reflecting the results of the evaluation scrutinizing of public projects by the GRU Repayment of funds in public-service corporations, etc.: 1.0 trillion Reductions to the expenditures from the budget requests stage: 1.0 trillion Reductions in budget requests stage: 1.3 trillion Total: 3.3 trillion (Note 1) Including special grants for the newly established child allowance and the existing child benefits 5 (Note 2) Increasing medical care expenditures in medical care for acute hospitalization by approximately 400 billion for doctor shortage measures. (Fiscal resource: national health insurance drug prices revision)

Non-Tax Revenues ~ Ensure the highest-ever non-tax revenues with maximum effort ~ FY2007 Initial FY2008 Initial FY2009 Initial FY2010 Initial 4.0 trillion 4.2 trillion 9.2 trillion 10.6 trillion (highest on record) Utilizing the reserves (stock) and the surpluses (flow) in the special accounts Special Account for Fiscal Investment and Loan Program (Fiscal Loan Program Fund Account) : 4.8 trillion Transfer all of the remaining reserves (stock) to the General Account : 3.4 trillion In addition, transfer all of the surplus ( 1.4 trillion) (flow) to the General Account, as an exceptional measure. Special Account for Foreign Exchange Funds: 2.9 trillion Transfer all of the FY2009 surplus ( 2.5 trillion [highest on record] ) (flow) to the General Account (Note) In FY2009: 3/4 of the surplus was transferred In addition, transfer part of the expected surplus in FY2010 ( 0.35 trillion [equivalent to the highest on record] ), as an exceptional measure. In addition, transfer 0.2 trillion to the General Account from seven Special Accounts (Social Infrastructures Improvement, Food Supply, Trade Reinsurance, Fiscal Investment and Loan Program (Investment Account), Registrations, Patent Registration, and Agricultural Mutual Aid Reinsurance) Reviewing the funds of public-service corporations, etc. Repayment of funds of public-service corporations and independent administrative agencies, etc., to the national treasury: approx. 1.0 trillion Of which: funds of public-service corporations, etc.: 0.8 trillion; repayment as a result of reviewing FY2009 first supplementary budget: 0.2 trillion (Note) Including repayment of interest-free loans in Organization for Promoting Urban Development (MINTO) to the special account ( 109.7 billion) (Reference) Changes in the Budget Formulation Process Substantially reform of the budget formulation process in FY2010 budget formulation Principles of FY2010 Budget Formulation (September 29, 2009 Cabinet Decision) Aggressive spending cuts were pursued at the budget request stage wherever possible, by carrying out zero-based review of the priorities of the existing budget strictly. (At the time of FY2010 budget requests, approx. 1.3 trillion was slashed from the existing budget) Fully public scrutinizing of public projects by the Government Revitalization Unit December 15, 2009 Basic Principles of Budget Formulation (Cabinet Decision) Bold review of expenditures based on the evaluation results of the scrutinizing of public projects. In addition, thorough review of cross-sectional projects. Disclosure of the reflection of the evaluation results of the scrutinizing of public projects. Controlling the amount of FY2010 government bond issuance within approx. 44 trillion 6

3. Comparison of the Government Budget to a Household Budget Japan s public finance is likened to running a household economy with a monthly income of 400,000 yen, it would have to borrow 370,000 yen every month to cover the necessary monthly expenditure and would already have amassed loans amounting to 60 million yen. <Household Budget for a month> <FY2009 General Account> Household monthly income 400 thousand ーTax and Non-tax Revenues 48.0 trillion ーIf Total necessary expenditures 770 thousand Household expenditures 450 thousand Monthly Allowance for Children 150 thousand Payment on Loans 170 thousand =General Account Expenditures 92.3 trillion General Expenditures 53.5 trillion Local Allocation Tax Grants, etc. 17.5 trillion National Debt Service 20.6 trillion =Shortfall = Borrowing 370 thousand Government Bond Issues 44.3 trillion By the end of the fiscal year these borrowed funds would continue to accumulate to reach as follows. Loan Outstanding 63,700 thousand Bonds Outstanding 637 trillion 7

4. Trends in General Account Expenditures and Tax Revenues Japan continues to run budget deficits where expenditure exceeds revenue. While the gap between revenue and expenditure had been narrowed until a few years ago thanks to economic recovery and measures taken to achieve fiscal consolidation, it has started to widen again with decline in tax revenues reflecting economic turndown. (Trillion yen) 120 100 102.6 80 60 40 20 0 Total Expenditures 70.5 70.5 69.3 65.9 78.8 78.5 75.1 75.9 73.6 84.4 89.0 89.3 84.8 83.7 82.4 84.9 85.5 81.4 81.8 61.5 60.1 59.8 57.7 54.9 53.6 54.4 54.1 50.8 51.0 51.952.1 53.9 50.7 49.4 46.8 47.2 47.9 49.149.1 51.0 53.5 50.6 51.553.0 46.9 47.2 45.6 43.8 44.3 43.4 43.3 44.3 41.9 15.0 38.8 38.2 Tax Revenues 37.5 6.4 34.1 34.9 34.0 35.0 35.3 35.5 32.4 33.0 33.2 30.5 Construction Bond Issues 31.3 36.9 37.4 29.1 29.0 30.0 6.7 26.9 13.2 8.7 9.1 27.5 7.0 24.5 11.1 7.8 21.9 23.7 Special Deficit-Financing Bond Issues 25.4 17.0 9.1 20.9 21.2 21.7 6.4 6.0 17.3 18.5 15.7 16.2 16.5 38.4 38.0 13.8 13.5 14.2 14.0 12.9 13.5 12.8 10.7 12.3 10.7 11.3 28.7 9.6 9.4 9.5 16.4 9.9 24.3 25.8 26.8 26.2 21.9 23.5 7.2 7.1 7.0 7.0 20.9 21.1 7.0 6.8 6.4 7.2 12.3 6.3 6.6 7.3 6.7 19.3 5.3 5.0 6.3 6.2 16.2 17.0 3.7 6.9 1.0 9.5 11.0 3.2 6.3 7.2 2.1 3.5 4.5 5.9 7.0 8.5 6.7 6.4 6.2 6.0 4.3 5.0 6.4 6.3 6.7 2.5 4.1 4.8 1.0 0.2 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 84.7 92.3 (FY) General Account Expenditures and Revenues (Trillion yen) Fiscal year 1975 1980 1985 1989 1993 1998 2003 2008 2009 2010 Expenditures 20.9 43.4 53.0 65.9 75.1 84.4 82.4 84.7 102.6 92.3 General Expenditures 16.4 30.6 33.1 38.8 47.4 52.4 49.5 49.9 66.7 54.2 Local Allocation Tax Grants, etc. 3.3 7.3 9.7 15.0 13.9 14.3 17.4 15.7 16.6 17.5 National Debt Service 1.1 5.5 10.2 12.1 13.7 17.7 15.5 19.2 19.3 20.6 Revenues 16.2 29.9 41.7 60.6 61.6 55.8 50.3 56.0 49.1 48.0 Tax Revenues 13.8 26.9 38.2 54.9 54.1 49.4 43.3 44.3 36.9 37.4 Other Revenues 2.4 3.0 3.5 5.7 7.4 6.4 7.0 11.8 12.2 10.6 Government Bond Issues Bond Dependency Ratio (%) 5.3 14.2 12.3 6.6 16.2 34.0 35.3 33.2 53.5 44.3 25.3 32.6 23.2 10.1 21.5 40.3 42.9 39.2 52.1 48.0 (Note 1) FY1975-2008: Settlement; FY2009: Second Revised Budget; FY2010: Initial Budget (Note 2) The above-listed General Account expenditures include, for the sake of convenience, Repayment of the Fund of Compensation for the Shortfall at Settlement and other items. FY2010 General Account expenditures excluding the repayment of the fund of compensation for the shortfall at FY2008 settlement amount to 53.5 trillion yen. (Note 3) Other revenues in the General Account revenues include operating gains and operating income (e.g.: hospital revenues), gain on sale of government assets (e.g.: gain on sale of national properties), and miscellaneous income (e.g.: contribution from the Bank of Japan and receipts from Special Accounts). (Note 4) Ad-hoc Deficit-financing bonds (approx. 1 trillion yen) were issued in FY1990 as a source of funds to support peace and reconstruction efforts in the Persian Gulf Region. 8

5. Accumulated Government Bonds Outstanding Japan s outstanding government bonds have been increasing year after year. The outstanding government bonds are estimated to rise to 637 trillion at the end of FY2010, which amounts to 17 times as large as Japan s annual tax revenues and will surely impose heavy burdens on future generations. (Trillion yen) 700 650 600 Accumulated outstanding long-term government debts at central and local government levels, which include indebtedness at the local government level, are estimated at 862 trillion, or 181% of Japan s GDP, at the end of FY2010. 637 245 600 241 550 500 Equivalent to approx. 17 years of General Account Tax Revenues Tax Revenues in FY2010 General Account Budget: Approx. 37 trillion 546 541 527 532 225 237 247 243 499 241 457 450 400 350 300 250 200 150 100 50 0 FY2010 Government Bonds Outstanding Approx. 637 trillion (projection) Approx. 4.99 million per person Approx. 19.98 million per family of 4 Average disposable income of a working family Approx. 5.31 million (Average family size: 3.45) (Note) Disposable income and family size are based on the FY2008 Survey of Household Economy by the Ministry of Internal Affairs and Communications. 207 158 193 142 166 172178 131 258 245 175 225 168 295 187 332 197 368216 209 421 222 392 176 145 152157161 102 108116 134 91 97 158 87 122 81 110 75 134 96 69 63 82 108 71 56 56 49 83 Special Deficit- 77 42 43 47 53 59 64 65 65 64 65 64 63 61 64 67 Financing Bonds 32 35 22 28 15 40 22 33 17 28 0 1 2 2 2 3 4 6 8 10 13 15 21 10 2 5 65 66 67 68 69 70 71 72 73 74 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 (End of FY) 199 226 231 258 288 280 305 321 359 Construction Bonds 392 Government Bonds Outstanding to GDP FY 1965 1970 1975 1980 1985 1989 1993 1998 2003 2008 2009 2010 Government Bonds Outstanding to GDP 0.6 3.7 9.8 28.4 40.7 38.7 39.9 58.7 92.6 110.5 126.9 134.0 (%) 9 (Note) Government Bonds Outstanding is as of the end of March of each fiscal year, except for FY2009 which shows the estimate after Second Supplementary Budget, and for FY2010 which shows the estimate after Initial Budget.

6. Change in the Composition of the General Account Expenditures The ratio of expenditure on national debt service to the General Account Expenditures is rising at a consistent pace with increase in cumulative government bond issues, thus putting pressure on outlays needed to carry out other policy measures. 100% 80% 1.5 18.8 3.5 21.6 12.7 16.0 20.7 24.0 22.4 National Debt Service 60% 11.1 14.1 18.8 23.0 17.7 18.9 Local Allocation Tax Grants, etc. 40% 51.2 43.2 16.6 19.7 29.5 Social Security- Related Expenditures 36.6 20% 29.7 25.2 22.9 Others Education & Science National Defense, etc. 0% 17.4 17.6 15.9 13.3 10.0 6.3 FY1960 FY1970 FY1980 FY1990 FY2000 FY2010 (Note) FY1960-2000: Settlement; FY2010: Initial budget Public Works- Related Expenditures 7. Interest Payments and Government Bonds Outstanding As Japan s cumulative government debt outstanding is expanding at a quick pace not seen in other countries, there is a growing concern about significant increase in interest payments should the level of interest rates rise in the future. (Trillion yen) 10% 25 Interest rate (left scale) 8% 20 7.6 7.4 7.4 7.1 7.2 7.4 7.5 7.6 7.5 7.4 7.2 6.8 6.5 6.3 6.2 6.1 6.1 Government bonds Outstanding (right scale) 527 532 541 546 499 600 637 (Trillion yen) 700 600 500 6% 15 4% 10 2% 5 0% 0 5.8 457 5.4 421 400 Interest payments (left scale) 5.1 392 4.6 368 332 9.7 10.2 10.8 10.8 10.5 10.7 10.7 10.6 10.8 10.0 9.8 9.4 300 11.0 8.7 295 10.4 10.6 10.6 10.7 4.3 10.5 8.6 4.0 8.4 7.7 3.1 7.8 245 258 7.3 7.0 7.0 7.4 7.6 6.6 3.5 193 207 225 2.7 200 5.6 2.3 4.4 110 122 134 145 152 157 161 166 172 178 2.0 1.7 1.5 3.3 1.4 1.4 1.4 1.4 2.6 100 1.9 96 1.3 82 0.8 71 56 22 32 43 15 0 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 (Note 1) Interest Payments for FY1975-2008: Settlement; FY2009: Second revised budget; FY2010: Initial budget. (FY) (Note 2) Government bonds outstanding for FY1975-2008: Actual; FY2009: Second revised budget; FY2010: Initial budget. 10