Jun 10, 2013

    Tokyo plans tax cuts to lift economy

    JAPANESE Prime Minister Shinzo Abe said yesterday the government would decide on tax cuts in autumn to encourage companies to boost capital expenditure, as part of sweeping reforms to revive the economy from nearly two decades of stagnation.

    The government will also work on legislation to scrap regulations hampering corporate research and investment, and secure passage in Parliament in autumn, he said.

    "We'd like to decide on bold tax cuts for capital expenditure," Mr Abe told public broadcaster NHK.

    He also voiced the possibility of delaying a consumption-tax hike scheduled for next year if the economy remains weak.

    The measures will add to a series of steps the government unveiled in a draft of its growth strategy last week, such as setting up special economic zones to attract foreign businesses and raising incomes by 3 per cent annually.

    On the consumption-tax hike, Mr Abe stressed that his basic policy was to raise the 5 per cent consumption tax to 8 per cent next year and then to 10 per cent in 2015.

    "But the economy is a living thing. We have to further improve the real economy and put it on a path of robust growth. (The tax hike) must not serve as shackles to that effort," Mr Abe said, adding that a decision on the hike would be made after a review of economic data in autumn.

    The consumption-tax rise was touted last year by then prime minister Yoshihiko Noda, whose Democratic Party lost in a national election in December.

    The hike is seen by economists around the world as necessary to contain Tokyo's expanding national debt, which stands at about twice the size of the world's third-largest economy.

    The growth strategy is the "third arrow" in Mr Abe's prescription to reverse deflation, which also includes hyper-easy monetary policy and big government spending.

    The first part of the Prime Minister's growth strategy, to be finalised on Friday, failed to impress markets that saw it as lacking specifics. That helped push down Japanese equities to two-month lows last Friday.

    Mr Abe said his government would lay out the second part of his growth strategy in autumn, to include the tax cuts, when Parliament reconvenes after an Upper House election on July 21.

    "We will make that parliamentary session one in which we'll implement our growth strategies," he said.

    On recent market turbulence and sharp falls in Tokyo share prices, Mr Abe said he would not comment on day-to-day market moves, but stressed that his policy measures were already leading to improvements in output and job conditions.