Finance Minister Hikaru Matsunaga took a cautious stance April 7 toward the use of large-scale income tax cuts as an economic stimulus measure, noting that personal spending is falling even though disposable income is not declining.
"Tax cuts work on the principle that an increase in income will be channeled toward consumption, but at the moment figures show that disposable income is growing slightly. We need to develop ideas that will be effective under these circumstances," he told a news conference.
Matsunaga's comments were taken as an indication of the Finance Ministry's reluctance to endorse large-scale tax cuts, which would jeopardize its fiscal reconsolidation efforts. Many politicians and business circles -- as well as the United States -- have called on the government of Prime Minister Ryutaro Hashimoto to consider income tax reductions as a way to boost domestic demand. But some lawmakers, including senior officials in the ruling Liberal Democratic Party, have been skeptical of the effectiveness of tax cuts and instead suggest that greater weight be placed on public works projects.
Meanwhile, Koji Omi, director of the Economic Planning Agency, said April 7 that the economy "is stalling and in a severe situation."
Omi's perspective is grimmer than those previously offered by his agency in its monthly economic assessment reports, and his remarks were taken as an indication of the agency's readiness to use more pessimistic wording to describe the state of the economy in its monthly assessment report, which the agency will release Friday.