Japan Gets it Right

Ruling parties agree on 2 trillion yen tax cuts for FY 2008
TOKYO, Oct. 22 KYODO
Senior members of the ruling parties reached a broad agreement Tuesday on tax cuts of some 2 trillion yen in fiscal 2008 as the core of the government's additional stimulus package to address the global financial turmoil and slowing economic activity in Japan, lawmakers said. The Liberal Democratic Party and New Komeito party also agreed to revise a law to facilitate an injection of public funds into regional financial institutions in order to prevent a credit crunch, they said. The two parties will meet again Thursday to reach a final agreement, paving the way for the government to hammer out the new economic package, value of which is estimated at 20 trillion yen by a senior ruling coalition official, following the first one worth about 11.7 trillion yen, which was unveiled Aug. 29 before the U.S.-triggered credit crisis deteriorated further. The new package is expected to involve state funding of about 5 trillion yen, said the senior ruling coalition official. Details of the plan to implement fixed-amount cuts in state and municipal income taxes in fiscal 2008, ending next March 31, will likely be worked out in year-end tax reform deliberations, the lawmakers said. If tax cuts worth 2 trillion yen are implemented, a sum close to 65,000 yen will be refunded to a four-member household with two children. The sum was refunded under the 1998 income tax cuts. As low-income households not subject to taxation will not benefit from fixed-amount tax cuts, some participants in Tuesday's meeting called for the distribution of one-time monetary benefits to them. The government is expected to tap reserves in the special account for fiscal investments and loans for financing the tax reduction. To revise the bank recapitalization law, the government plans to submit a necessary bill to the Diet on Friday in order to have it enacted by the end of this month. As the period of applications for public funds for regional financial institutions expired March 31, the ruling coalition envisages extending the period to the end of March 2012. The legal revision is necessary to use some 2 trillion yen set aside for recapitalization of banks under the fiscal 2008 budget. The government intends to funnel capital into regional financial institutions to enable smaller firms to meet strong year-end funding requirements. Senior members of the ruling parties also called for extending tax breaks for housing loans from their expiry slated for the end of this year and government support for policyholders of collapsed life insurance companies from the end of March 2009. In addition, they confirmed the need to reinforce support for small and midsize companies' fundraising while discussing ways of revising regional economies and cuts in expressway tolls.==Kyodo