Tax Cuts Uncertain, Says Japanese Leader

Japanese Prime Minister Ryutaro Hashimoto Sunday said permanent income-tax cuts are still a matter of debate, dashing world financial market hopes of swift measures to revive the nation’s economy.

In a political embarrassment for the prime minister one week before the July 12 national elections, Hashimoto was forced to put to rest last week’s campaign comments interpreted to mean that permanent income-tax cuts are possible after the elections.

Hashimoto made the initial comments Friday, a day after Japan went some distance toward answering global demands for action with a plan to clear 77 trillion yen ($546 billion) of problem loans through “bridge banks” that would take over failed institutions.

“I never said permanent tax cuts,” Hashimoto told Television Asahi on Sunday. “I just said we would review the tax system to make permanent reforms.

“Of course, I don’t think as a result of the reforms we would end up with a tax rise, but I can’t guarantee a tax cut. It’s possible it might also be neutral,” he added.

Later in the day, Koichi Kato, secretary-general of the Liberal Democrats, told reporters that tax reform measures would probably result in a net 100 to 200 billion yen in tax cuts.

Hashimoto, whose political survival depends on how his Liberal Democratic Party fares in the coming vote, was forced into admitting that the tax issue is still open under grilling by reporters and opposition leaders on television talk shows.

Although markets were briefly cheered by Hashimoto’s comments Friday, they held back from a major rally, fearing his words were an election ploy that would not be carried through.

Denying that his comments were election-related, Hashimoto said his remarks were misinterpreted due to his long-held view that tax reform is needed.

On Saturday, Foreign Minister Keizo Obuchi appeared to back up interpretations of the remarks as meaning permanent tax cuts were on the way, a view splashed on newspaper front pages.

“The prime minister himself mentioned making tax cuts permanent. He also mentioned lowering corporate taxes to global standards. We must keep a public promise made by our prime minister during campaigning,” Obuchi said.

But in a comment that raised questions about disarray in economic policymaking, LDP’s Kato said Obuchi “misunderstood” the prime minister’s remarks.

If tax cuts are implemented, they would probably bring the maximum combined rate for national and local income taxes--one of the highest in the industrialized world at about 65%--down to 50%, Japanese media reported.