THURSDAY DECEMBER 17 1998
Asia-Pacific
JAPAN: LDP proposes new tax cuts
By Paul Abrahams in Tokyo
Japan's ruling Liberal Democratic party yesterday proposed a ¥9,300bn ($80bn) package of tax cuts aimed at boosting the economy, which has just recorded its fourth quarter of negative growth. The proposals involve cuts in income and corporate taxes more than ¥3,000bn bigger than previously announced plans.
However, economists doubted that they would prevent the economy contracting next year. Before the announcement of these measures, it had been estimated that an end to last year's one-off rebates would mean income tax for 80 per cent of salaried workers would rise next year. This would have provided yet another powerful incentive for Japan's reluctant consumers not to spend.
Most economists believe the new measures, if implemented, would leave income tax unchanged for most people next year and would do little to boost economic growth.
"Consumers will only start spending when the economy is on a sustainable path to growth and unemployment peaks. But that isn't going to happen in 1999," says Robert Feldman, economist at Morgan Stanley in Tokyo.
Concerns about funding the tax cuts again hit the bond market. The yield on the 10-year benchmark bond jumped 0.07 percentage points to 1.33 per cent. The market was also surprised by yesterday's data showing stronger than expected money supply growth during November, up 4.4 per cent year on year.
Separately, the government indicated it would have to issue ¥70,000bn worth of bonds next financial year, a net increase of ¥30,000bn. Tax revenues are expected to fall as much as ¥50,000bn, mostly because of a collapse in corporate profitability.
Economists also expressed disappointment there were no proposals to use the recently raised sales tax to increase the state's contribution to pensions. This would have reduced the burden on companies and individuals.
The package includes permanent cuts in income tax worth ¥4,000bn and a ¥2,300bn reduction in the effective corporate tax rate to 40.87 per cent from 46.36 per cent.
In addition there will be tax breaks worth ¥1,300bn for home buyers, and ¥300bn in child tax credits aimed at halting the fall in the birth rate. The panel also proposed an end to the securities transaction tax from March.
The new policies follow intensive negotiations between the LDP and its prospective coalition partners, the Liberals, who had been demanding larger cuts in tax. Keizo Obuchi, the prime minister, has promised the tax cuts, together with additional government spending of ¥24,000bn, will produce "clear-cut positive growth" for the Japanese economy in the financial year starting in April.
|
