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To: Alex who wrote (22728)	11/8/1998 2:25:00 PM
From: goldsnow	Respond to of 116950

7 Nov 1998 Malaysia may lift capital curbs over next 18 months SPH profit down 18.8% as investment income falls Viagra coming soon to S'pore See also: Japan Inc slides into the red for the first time since 1970s Tokyo thinks the unthinkable: a cut in consumption tax Ruling party's options dwindle as it faces painful choice By Anthony Rowley N what appears to be a major climbdown from Japan's past policies of fiscal rectitude, a senior official of the ruling Liberal Democratic Party acknowledged yesterday that a possible cut in the national consumption tax is under discussion. Japan's deep economic recession dates from April last year when the consumption tax was raised from 3 per cent to 5 per cent. Ichizo Ohara, a member of the LDP's tax commission, said that a cut in the consumption tax was being considered as one way of boosting the economy. A decision in principle is likely by Nov 11, a day before Premier Keizo Obuchi's government is expected to announce a massive package of fiscal stimulus measures. A debate is underway within the LDP over when and how far to reduce taxes in order to spur the economy and to arrest a downward spiral of falling consumption and declining prices. Although cabinet secretary Hiromu Nonaka hinted yesterday that it might not be possible to launch a debate on tax cuts when Parliament reconvenes in special session later this month, some early statement of government intent now appears imminent. Independent experts yesterday suggested that a cut in the sales tax could produce the kind of psychological boost to consumption which other measures, such as temporary cuts in income tax, have failed to do. The beneficial impact on critical and depressed areas of the economy such as housing and car sales could be very marked, one economist suggested. The consumption tax was raised on April 1 last year after former prime minister Ryutaro Hashimoto launched a fiscal austerity policy which many now blame in large part for pushing Japan's economy into its deepest recession in 50 years, after it had posted 3.2 per cent real growth in 1996. The LDP's poor showing in July's elections is attributed by many to Mr Hashimoto's unwillingness to acknowledge his mistakes -- which eventually cost him his job. His successor has proved more pragmatic and willing to compromise. Mr Obuchi has formed a political alliance with the Liberal Party led by veteran politician Ichiro Ozawa, who is pushing for a reduction in the highly unpopular consumption tax. Prior to its being raised, personal consumption -- which represents more than 60 per cent of Japan's GDP -- had been growing at an annual rate of 4 per cent before plunging to minus 2 per cent. Senior International Monetary Fund officials are among those who have argued in favour of reducing the tax but until now successive governments have been unwilling to consider such a move. They were afraid of the loss of political face and also that such a move would damage Japan's ability to shift the tax burden away from income taxes towards direct taxes on consumption. A consumption tax reduction may even now meet stiff resistance. Yuji Tsushima, head of a sub-committee of the LDP's tax panel, suggested yesterday that any reduction is likely to be temporary and that there could be difficulty in raising the tax again if it was cut. The finance ministry's tax commission is also likely to oppose any move that will endanger long-term tax reform. But with the economy sliding deeper into recession, the government's options are narrowing. Finance Minister Kiichi Miyazawa is among those who appear to have recognised that the promised stimulus package will be as important in terms of its impact upon depressed consumer and investor sentiment as in terms of the numbers involved. Cutting the consumption tax could be highly effective in this regard, many economists argue. Mr Miyazawa indicated yesterday that fiscal stimulus would need to go beyond fiscal 1999 to get the economy back on its feet. His comment came against the backdrop of a report by the Economic Planning Agency saying that the economy is "in a prolonged slump, with conditions extremely severe". Positive effects of public spending are emerging but are overshadowed by concerns about a credit crunch, the recent sharp rise of the yen and a slowdown in other economies, the EPA said. business-times.asia1.com.sg