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Tokyo backpedals on fiscal reform as economy falters


Financial Post, Daily edition, Thursday, February 26, 1998

Despite the concern of fellow Group of Seven members, Japanese Prime Minister Ryutaro Hashimoto appeared yesterday to indicate fiscal reform will be moved to the back burner.

Asked about the possibility of temporarily delaying fiscal reforms in order to boost the economy, Hashimoto told a key parliamentary committee: ``I have said before that I would like to sufficiently study the issue.... It is true that it is one idea among legislative policies. I see it as a positive idea.''

But he shied away from explicitly endorsing the idea.

His remarks follow the G7 meeting of finance ministers and central bank governors last Saturday at which Japan was singled out as needing to boost growth with looser fiscal policy to absorb imports from crisis-ridden Asia and to prevent a large increase in its trade surplus.

The country's fiscal reform law mandates Tokyo halt deficit-financing bond issues by fiscal 2004 (ending March 31) and cut state debt to 3% of gross domestic product.

Hashimoto's popularity ratings remain low, thanks to the faltering economy. He had a 34.8% approval rating last month compared with 34.7% in January, his lowest to date, according to a survey published yesterday.

Shoichiro Toyoda, chairman of powerful business lobby Keidanren, called for a quick reduction in the corporate tax rate to 40% from 46%, one of the highest in the G7.

Tokyo has so far refused to make any fiscal promises, saying its first priority is passage of the full budget for fiscal 1999. However, the government has also said it will remain flexible in the interests of economic recovery.

In late January, Liberal Democratic party acting secretary general Hiromu Nonaka, called for a six-trillion-yen ($66-billion) extra budget of economic stimulus, to be financed by tax revenue on interest from high-interest bearing postal deposits due to mature between 2000 and 2002.

Economists have said steps already taken to boost the economy were not enough, such as two trillion yen in income tax rebates, a 30-trillion-yen package to shore up the financial sector, plus the recent announcement of deregulatory moves.

On Tuesday, Hashimoto told parliament it was fine for his LDP to discuss an economic stimulus package to be financed from future tax revenue on postal deposits, but refrained from backing the plan.

Yesterday, Kaoru Yosano, a senior LDP member, said political necessity meant Tokyo would have to continue a special income tax cut for at least one more year. He also said raising interest rates would be effective in stimulating the economy.

Influential financial figure Eisuke Sakakibara, the vice-finance minister for international affairs, told parliament he had stressed at the G7 meeting that there was no need for Japan to make new spending plans.

Source: This information is provided by the Financial Post.

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