Japanese Minister Says Tax Cuts Should Be Permanent

by Mary Swire, Tax-News.com, Hong Kong

03 September 2002

Japanese Minister of State for Economic and Fiscal Policy, Heizo Takenaka, says that the Cabinet has already decided that planned tax cuts will be permanent. Interviewed by newspaper Nihon Keizai Shimbun, the minister said that a plan to combine some temporary with some permanent tax cuts put forward by the Tax Commission had been rejected. However he did not rule out using temporary tax cuts in combination with other policies:

'Posing the argument that we must choose between temporary and permanent tax cuts violates the spirit of the cabinet decision,' said Mr Takenaka, 'Permanent tax reform has already been decided. For the time being, we should be discussing what new temporary tax cuts to combine with the permanent ones we have decided upon.'

Mr Takenaka said that structural reform was unavoidable and would require a period of painful adjustment over the next two years. Despite figurtes showing that the economy had grown by 0.5% in the last quarter, he did not expect much or any economic growth during that time.

Asked about the size of the tax cuts, the minister said: 'If we plan to neutralize the cuts over several fiscal years, we can be sure of a tax cut in the first year of at least Y1 trillion. The Council on Economic and Fiscal Policy should deliberate about this further in a way that is visible to the public, but in the end the decision will probably be made by politicians.'

Mr Takenaka had previously said that tax cuts should be focused on corporations rather than individuals, if they are to be effective in revitalising the country's ailing economy.

'If you just return the money to individuals and you don't create the power of businesses to add value, you will just end up where you were before,' he explained last month: 'In order to return Japan's competitiveness in the mid- to long-term, you cannot avoid lowering the tax burden on corporations.'

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