'TACKLE DEFLATION BEFORE BAD LOANS'

Business leader rips into Takenaka

Nobuo Yamaguchi, chairman of the Japan Chamber of Commerce and Industry, urged the government Thursday to contain deflation before accelerating the disposal of bad loans weighing down the nation’s banks.

“If we hasten the disposal of problem loans when deflation is under way, it will add to deflation and increase bad loans,” Yamaguchi told a news conference.

Yamaguchi was critical of the agenda of Financial Services Minister Heizo Takenaka, who advocates acceleration efforts of this kind.

“The United States backs Takenaka, but Japan needs to work out countermeasures on its own,” Yamaguchi said in reference to recent praise of Takenaka by Glenn Hubbard, chairman of the White House’s Council of Economic Advisers.

“While scholars can rewrite dissertations, no redo is permitted for economic phenomena,” Yamaguchi said.

Takenaka was an economics professor at Keio University before joining the Cabinet of Prime Minister Junichiro Koizumi as a minister outside the Diet.

Among the antideflation measures advocated by Yamaguchi are tax breaks for investment and home purchases, along with the early compilation of a supplementary budget for the current fiscal year.

1 trillion yen tax cut eyed

A government panel on Thursday presented tax-cut proposals for corporate research and development and capital investment to be included in the government’s tax reforms for fiscal 2003.

A subcommittee of the Tax Commission approved the proposals in a meeting in the morning, commission chairman Hiromitsu Ishi said, adding that he wants tax cuts in the two areas to be worth about 1 trillion yen.

The proposals were to be presented later in the day to the Council on Economic and Fiscal Policy, which is scheduled to compile a package of steps aimed at combating deflation and promoting the disposal of bad loans at banks by the end of the month.

Under the new tax-cut plan, a portion of corporate R&D expenses would become exempt from taxes, although the exact size of that portion has yet to be worked out, Ishi said at a news conference.

The plan was worked out after critics charged that the current system, which only implements tax exemptions based on an increase in R&D expenses, is ineffective in boosting R&D during a business slump, when companies cut back on such spending.

From the viewpoint of encouraging companies to boost R&D, companies whose R&D expenses comprise a bigger percentage when compared with their sales figures would receive a larger percentage of tax cuts, according to a statement issued by Ishi.

The statement said that tax cuts for capital investment should focus on the area of information technology, saying that promotion of investment in the area “is expected to create short-term demand.”

The commission is one of three key panels discussing changes to the tax system. The other two are the Council on Economic and Fiscal Policy and the ruling Liberal Democratic Party’s Tax System Research Commission.