TOKYO, Aug 7: Finance Minister Masajuro Shiokawa said on Wednesday Japan would introduce pump-priming tax cuts over the next three years but these would be fully offset by other tax rises within five years.

“Tax cuts to reinvigorate the economy will total as much as two trillion yen ($16.7 billion),” he told a news conference, referring to the next tax year starting in April.

Other tax hikes would reduce the net tax reduction to a figure over one trillion yen, he added after Prime Minister Junichiro Koizumi’s cabinet approved an outline for next year’s budget.

“In my view, more tax cuts will be implemented than tax increases in the next three years,” Shiokawa said. “We wish to strike the balance in five years.”

The budget framework capped general expenditure at 48.1 trillion yen ($404 billion), slightly above this year’s planned outlay of 47.5 billion yen, and trimmed public works spending by three per cent from the current year’s 9.3 trillion yen.

Tax reform plans have not been spelled out in detail by the government but Shiokawa said earlier tax cuts might focus on corporate investment in capital spending and research.

There are fears among sceptics that Koizumi’s government might seek to lower the threshold for paying personal income taxes to extend the base of ordinary taxpayers while favouring big business with corporate tax cuts.

Chief Cabinet Secretary Yasuo Fukuda said that the changes should represent a “tax system that can be basically maintained for a long period of time and is highly universal.”

On the basis of the budget ceilings, government ministries and agencies are to submit their requests for allocations by the end of this month.

Finance Minister Shiokawa said total general expenditure would be gradually cut to below this year’s level of 47.5 trillion yen as the budget plan is refined by the end of December.

The ministry had aimed to cut public works spending by 10 per cent, the same reduction as this year, but gave in to demands from the ruling coalition parties which said public works were necessary to spur Japan’s recovery from recession.

The modified cut has also been seen as an attempt to head off anticipated demands from the ruling Liberal Democratic Party for an extra budget this year to include additional public works projects.—AFP