Hashimoto seen backtracking on Japan tax plan
01:44 p.m Jul 05, 1998 Eastern
By George Nishiyama
TOKYO (Reuters) - Japanese Prime Minister Ryutaro Hashimoto Sunday said
permanent income tax cuts were still just a debate, dashing world
financial market hopes of swift measures to revive the nation's economy.
In a political embarrassment for the prime minister one week before July
12 national elections, Hashimoto was forced to put to rest campaign
comments last week interpreted as meaning permanent income tax cuts were
possible after the poll.
Hashimoto made the comments Friday, a day after Japan went some way
toward answering global demands for action with a plan to clear 77
trillion yen ($546 billion) of problem loans through ''bridge banks''
that would take over failed institutions.
''I never said permanent tax cuts,'' Hashimoto told Television Asahi on
Sunday. ''I just said we would review the tax system to make permanent
reforms.''
''Of course, I don't think as a result of the reforms, we would end up
with a tax rise, but I can't guarantee a tax cut, it's possible it might
also be neutral,'' he added.
Later in the day, LDP Secretary-General Koichi Kato told reporters that
tax reform measures would probably result in a net 100 billion to 200
billion yen in tax cuts.
Kato also said the government will not need to issue additional
deficit-covering bonds to make up an expected revenue shortfall
resulting from the cuts.
Hashimoto, whose political survival depends on how his Liberal
Democratic Party (LDP) fares in the poll, was forced into admitting the
tax issue was still open under grilling by reporters and opposition
leaders on television talk shows.
Although markets were briefly cheered by Hashimoto's comments Friday,
they held back from a major rally, fearing his words were an election
ploy that would not be carried through.
Hashimoto, who denied his comments were election-related, said the
misinterpretation of his remarks was due to his long-held view that tax
reform was needed.
Saturday, Foreign Minister Keizo Obuchi appeared to back up
interpretations of the remarks as meaning permanent tax cuts were on the
way, a view splashed on newspaper front pages.
''The prime minister himself mentioned making tax cuts permanent. He
also mentioned lowering corporate taxes to global standards ... we must
keep a public promise made by our prime minister during campaigning,''
Obuchi said at a joint news conference with U.S. Secretary of State
Madeleine Albright.
But in a comment that raised questions about disarray in economic
policymaking, LDP's Kato said Obuchi ''misunderstood'' his prime
minister's remarks.
''Mr. Obuchi may have been influenced by newspaper reports and
misunderstood his prime minister's comments,'' Kato told Television
Asahi.
The appearance, at least, of disarray was bad news for Hashimoto as
Japan heads into the last week of campaigning for an election that will
elect half of the 252 Upper House seats.
Hashimoto needs to win half of the seats -- 64 -- to keep economic
policies moving and head off an LDP leadership battle.
The LDP, which has a comfortable majority in the decisive Lower House,
is eight seats short of an Upper House majority which would allow swift
legislation on the economy.
''The prime minister's comfort zone is 64 to 69 seats or more,'' a
junior LDP parliamentarian told Reuters. ''Under 61, which is what the
LDP has at present, and we could be in for political turmoil that will
effect economic plans.''
If tax cuts are implemented, they would likely bring the maximum
combined rate for national and local income taxes -- one of the highest
in the industrialised world at about 65 percent -- down to some 50
percent, Japanese media reported.
They said two programs were possible: a combination of two trillion yen
worth of special income tax cuts for 1999 and the same in permanent
cuts; or introduction of double that in permanent tax cuts.
However, it is unlikely the minimum taxable income would be lowered as
it would draw fire as benefiting the rich at the expense of the poor,
they said.
''Frankly I would not be confident lowering the minimum taxable
income,'' Hashimoto told Fuji Television.
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