Noda rues expected revenue fall
Finance Minister Yoshihiko Noda admitted Tuesday the government has yet to secure sufficient financial resources to cover probable revenue shortfalls as a result of the corporate tax cut ordered by Prime Minister Naoto Kan.
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The tax cut could help fight deflation while bolstering the economy by boosting employment and investment, Noda told reporters. But he also said the plan must be considered under tax reforms as a whole, and that the administration will have to do some more "adjustment from this point going forward."
The government "will finally respond with something," Noda said, suggesting it will cover revenue shortfalls by issuing new government bonds.
But Koichiro Genba, state minister in charge of national policy, meanwhile said "it is more important to maintain a certain fiscal discipline," implying he could accept revenue shortfalls.
Kan on Monday instructed Noda and Genba to implement a 5 percentage point cut in the effective corporate income tax rate from the current 40 percent, which is relatively high by international standards and believed to have undermined companies' appetite for business investment.
The Kan administration has pledged to cut some expenses whenever it decides on new spending in an effort to restore the nation's fiscal health, the worst among major developed countries.
Under the pay-as-you-go principle, the government must cover a possible revenue shortfall of more than ¥1 trillion as a result of the planned 5-point cut with the funds it could secure through such measures as raising other taxes or downsizing tax-free and deduction arrangements.
The Ministry of Economy, Trade and Industry, which had been clamoring for a corporate tax cut by emphasizing the need to ease burdens on and improve the competitiveness of Japanese companies, has only secured about ¥650 billion as alternative sources.
METI chief Akihiro Ohata said Tuesday his ministry has made every effort to raise the amount, suggesting the government will be forced to consider other fiscal measures to back the tax cut.
Chief Cabinet Secretary Yoshito Sengoku said the tax cut would "send a message that companies are likely to increase their investment and employment in Japan." He also said the administration will study whether the tax could be reduced further next year.
Economic and fiscal policy minister Banri Kaieda urged business leaders to support the country's economic growth. They "have set goals for (higher) employment and capital spending," he told reporters, adding, "I want them to actually move" toward those goals.
The head of the Japan Business Federation (Nippon Keidanren) welcomed the government move, saying it would enable businesses to invest more and could lift employment.
"Amid the tough fiscal conditions, the government made great efforts. It is a step toward realizing the government's new growth strategy," said Hiromasa Yonekura, chairman of the lobby.
"We can spend the money we have paid to the government for investment, and the move will also lead to increased jobs," Yonekura said.
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