August 4, 2002	Sunday	Jamadi-ul-Awwal 24,1423

OSAKA, Aug 3: Finance Minister Masajuro Shiokawa said on Saturday Japan would cut taxes by more than one trillion yen ($8.4 billion) next year to stimulate the economy, reviving an ambitious target that had appeared to be abandoned.

Only a day earlier, Prime Minister Junichiro Koizumi’s economic advisers agreed on an outline of the 2003/04 budget in which a proposal for the one-trillion-yen target had been omitted. This fuelled criticism they were caving in to opposition to radical tax cuts from finance ministry mandarins.

“I want to cut taxes by a net one trillion yen or more,” Shiokawa, who is a member of the economic advisory panel, told an economic policy symposium in Osaka, western Japan.

“There will be tax cuts and perhaps some tax hikes, but the net reduction will be one trillion yen, with which we want to help reinvigorate businesses.”

The government will explore various funding options such as issuing government bonds or selling off state assets, he added.

The planned tax cuts, seen as crucial to reviving Japan’s economy from more than a decade of stuttering growth, comes at a difficult time when the government is trying to curb its debts, which at 140 per cent of gross domestic product is the biggest among industrial countries.

On Friday, Koizumi’s advisory panel — the Council on Economic and Fiscal Policy (CEFP) — agreed to keep general expenditure for fiscal 2003/04 starting next April below the 47.5 trillion yen budgeted this year.

That spending cut target, which is slightly above 47 trillion yen initially suggested, and with the omission of a specific size for tax cuts, signalled the clout held by free-spending politicians and tight-fisted bureaucrats.

Public works spending, which had been cut by 10 per cent for the current fiscal year, was to be trimmed by only three per cent next year.

Shiokawa’s latest comments suggested that Koizumi was sticking to the original plan but trying to keep the opposition camp happy for now with the toned-down CEFP statement.

But Shiokawa said he would continue to fight for spending cuts, arguing against suggestions that fiscal austerity was to blame for last year’s recession — the worst in post-war Japan.

“It is not appropriate to talk about the Japanese economy based merely on the cuts in the budget,” Shiokawa said.

“What we must do is to change the structure of our fiscal policy and thereby change how the economy works. From that perspective, we still want a tighter fiscal policy.”

Masaaki Honma, an Osaka University economics professor and CEFP member, said most leading economies had moved toward smaller governments in recent decades and Japan had been an exception, increasing public spending and funding it with government bonds.

“From a global viewpoint, what we had done was move toward a big government,” he told the symposium.

Economics Minister Heizo Takenaka, also speaking at the symposium, said there could be two types of tax cuts.

The first could be regarded as measures to stimulate demand in the near term, such as tax breaks for capital spending and accelerated amortisation of capital goods.

The second would be steps to help the supply side over the long term, such as reduction in the general corporate tax, aimed at preventing companies from moving abroad and not heavily penalising those who made a profit.

“Both are important. Whether we make the ratio 50-50 or one-to-nine or nine-to-one, it’s a matter of where we put our policy focus on,” Takenaka said.

He said President George W. Bush’s big tax cuts in the wake of the September 11 attacks should help the US economy in the near term.

But because of the possible fallout from the resurgent twin deficits in the fiscal and current account balances, the US economy may be faced with a burden similar to that prior to the golden years of the 1990s, he said.

For now, the real US economy was more solid than the shaky Wall Street stocks might suggest, given strong productivity gains and resilient consumption and investment, Takenaka said.—Reuters