TOKYO, Oct 17: Tokyo will pursue tax-related stimulus measures rather than additional spending to boost the economy, Japan’s finance minister said on Wednesday as lawmakers failed to pass a draft $22.5 billion extra budget.

We believe additional spending cannot return the economy to recovery, Masajuro Shiokawa told a lower house parliamentary committee, quashing speculation of a hefty supplementary package to support the faltering economy as it teeters on the brink of recession.

We will launch tax-related stimulus measures on top of the promotion of economic structural reforms, he said.

But unanswered questions about a controversial cap on new government bond issues and possible extra spending on anti-terrorist measures prevented Japan’s ruling coalition parties from approving a draft extra budget earlier Wednesday.

Finance ministry officials noted the supplementary budget will total $22.5 billion but the policy chiefs believe the draft is unclear on whether to keep the 30 trillion-yen bond limit or spend more to avoid negative growth, said Fumio Kyuma, acting policy chief of the Liberal Democratic Party.

We could not have approved the draft at this stage unless the government showed a much clearer picture, Kyuma told reporters after a budget meeting between the parties’ policy chiefs and ministry officials.

A cap on bond issues this financial year and next forms is central to a reform pledge by Prime Minister Junichiro Koizumi to kick-start the moribund economy after a decade of drift.

But ministers and lawmakers warn Japan could fall into a deep recession if the government fails to open its purse strings wider and spend more to stimulate economic growth, especially after the September 11, terrorist attacks on the US, which have pushed chances of recovery further away.

The government’s supplementary budget draft does not include anti-terrorism spending and, if needed, such spending will be added later, Kyuma said.

Speculation among private economists is high that Tokyo will stick to tight pump-priming measures for now and follow them up with a second stimulus package early next year as the full financial blow of last month’s suicide attacks in the US and the ensuing war on terrorism are felt.

But Kyuma said: We did not discuss the possibility of compiling a second supplementary budget.

Finance Minister Shiokawa said Tuesday the extra budget would only come to two trillion yen, of which half would be spent on the economy and half to repay some of Japan’s debt.

The level of spending is considerably lower than in recent years when it swung between four and 12 trillion yen, causing national debt to explode to around 130 per cent of gross domestic product — the highest ratio of all industrialised nations and a figure Tokyo is desperate to reduce.

As part of Koizumi’s reform plan the government aims to channel extra funds to new growth areas, such as science and technology and the unemployed, reversing an earlier policy of flooding loss-making public works projects with cash.—AFP