Monetary policy pertains to the regulation, availability, and cost of credit, while fiscal policy deals with government expenditures, taxes, and debt. Through management of these areas, the Ministry of Finance regulated the allocation of resources in the economy, affected the distribution of income and wealth among the citizenry, stabilized the level of economic activities, and promoted economic growth and welfare.
The Ministry of Finance played an important role in Japan's postwar economic growth. It advocated a "growth first" approach, with a high proportion of government spending going to capital accumulation, and minimum government spending overall, which kept both taxes and deficit spending down, making more money available for private investment. Most Japanese put money into savings accounts (see table 12, Appendix).
In the postwar period, the government's fiscal policy centers on the formulation of the national budget, which is the responsibility of the Ministry of Finance. The ministry's Budget Bureau prepares expenditure budgets for each fiscal year (FY--see Glossary) based on the requests from government ministries and affiliated agencies. The ministry's Tax Bureau is responsible for adjusting the tax schedules and estimating revenues. The ministry also issues government bonds, controls government borrowing, and administers the Fiscal Investment and Loan Program, which is sometimes referred to as the "second budget."
Three types of budgets are prepared for review by the National Diet each year (see The Legislature , ch. 6). The general account budget includes most of the basic expenditures for current government operations. Special account budgets, of which there are about forty, are designed for special government programs or institutions where close accounting of revenues and expenditures is essential: for public enterprises, state pension funds, and public works projects financed from special taxes. Finally, there are the budgets for the major affiliated agencies, including public service corporations, loan and finance institutions, and the special public banks (see table 13, Appendix). Although these budgets are usually approved before the start of each fiscal year, they are usually revised with supplemental budgets in the fall. Local jurisdiction budgets depend heavily on transfers from the central government.
Government fixed investments in infrastructure and loans to public and private enterprises are about 15 percent of GNP. Loans from the Fiscal Investment and Loan Program, which are outside the general budget and funded primarily from postal savings, represent more than 20 percent of the general account budget, but their total effect on economic investment is not completely accounted for in the national income statistics. Government spending, representing about 15 percent of GNP in 1991, was low compared with that in other developed economies. Taxes provided 84.7 percent of revenues in 1993. Income taxes are graduated and progressive. The principal structural feature of the tax system is the tremendous elasticity of the individual income tax. Because inheritance and property taxes are low, there is a slowly increasing concentration of wealth in the upper tax brackets. In 1989 the government introduced a major tax reform, including a 3 percent consumer tax.
Data as of January 1994