Japan working on fresh tax cuts


Koizumi, here at the APEC conference last year, is pushing ahead with tax cuts on inheritance, gifts and company research

TOKYO, Japan -- The administration of Prime Minister Junichiro Koizumi plans to cut taxes starting in January 2003.

Koizumi's government has announced its aim to slash taxes for companies on research and development. There are separate moves to cut personal taxes, on gifts from parents to children and on inheritance.

Koizumi called policy officers from his party and his coalition partners to his official residence on Thursday to talk about steps to fight deflation.

That meeting saw Koizumi solicit support from members of his own Liberal Democratic Party (LDP), the New Komeito Party and the New Conservative Party.

Coalition parties at this point have their own agenda, seeking steps to cut the taxes on the environment, disaster prevention and energy saving.

Aims to combat deflation

They are also looking at tax cuts aimed at encouraging people to buy homes.


Japan is battling what economists call a "vicious cycle" of deflation, that brings down not only prices but also wages

Japan is battling entrenched deflation, which leads to lower prices and depresses profits, corporate earnings and wages.

The Japanese leader is still hewing to his course of drastic reform for Japan. But those objectives risk alienating the other parties in his coalition, as well as the bureaucrats who power the LDP.

After the draft process wraps up, the coalition would submit bills to the Japanese parliament next year. Any final cuts accepted would then be retroactive starting in January.

But the head of a government tax panel believes that Japan risks going bankrupt as a nation within 10 years, if it does not raise taxes (full story).

Less in the government coffers

Each step would mean less money comes into Japan's government coffers. The administration has also been pushing the privatization of numerous state-owned enterprises.

Most recently, the transportation department is working on a plan to privatize Japan's three main international airports, Tokyo's Narita, Osaka's Kansai International Airport and Nagoya's still to be built Chubu International Airport.

But that move itself creates tension between Narita and the other airports, which would then share a budget (full story).

Cutting taxes is likely to boost Koizumi's flagging public popularity, which is at fresh lows since he took office in April 2001.

The Koizumi government restated its goal of creating a tax code that suits the needs of society.

The government's tax commission is slated to put forward proposals on the tax code in August.

On Thursday, Koizumi also visited Sadanori Yamanaka, the tax research commissioner of his own party, to ask for his help in pushing the tax cuts through.

The promise of tax cuts have done little to spur Japan's stock market. Tokyo shares closed lower on Thursday, when word of the tax cuts first circulated, and remain down on Friday.

The Topix index closed down 1.89 percent at 1,054.26 on Friday, while the Nikkei has crunched below the 11,000 mark to end down 2.1 percent at 10,920.63.