The government on April 24 unveiled a comprehensive set of stimulus measures worth 16.65 trillion yen — the largest package ever compiled — in hopes of nursing the economy back to life.
While no permanent tax cuts were announced, the package includes tax cuts and public fiscal spending for social infrastructure amounting to 12.3 trillion yen — also a record amount. But Economic Planning Agency officials refused to say how much of it is “real water,” or actual spending.
A supplementary budget based on the package is expected to be compiled and presented to the Diet around mid-May.
The EPA calculates the package will push up nominal gross domestic product by 2 percent in the first year of implementation, even without the 2 trillion yen cut in special income and resident taxes to be implemented in calendar 1999.
Meanwhile, the ruling Liberal Democratic Party maintains the stimulus package is worth over 20 trillion yen with the inclusion of 4 trillion yen in money from state-run postal savings that would be invested in the stock market and 700 billion yen in assistance to Asia.
The bulk of the package came in the form of an additional 7.7 trillion yen in public works spending by the central and local governments, with a record 81 percent of those contracts for the current fiscal year to be authorized in the first six months.
The works include 1.6 trillion yen for environment-related projects and 1 trillion yen each for telecommunications, scientific research and welfare and education-type projects. Another key pillar of the plan is 4 trillion yen in income and residential tax cuts — 2 trillion yen for the current calendar year and 2 trillion yen in 1999.
The 2 trillion yen in tax rebates for 1998 would augment the 2 trillion yen in cuts already implemented. The government would also raise tax deductibility for home buyers and small enterprises that expand investment.
Disbursements of a set amount would be provided to pensioners and bed-ridden elderly or low-income earners who do not gain from the tax cuts, adding up to 150 billion yen, and a semigovernmental fund would receive an additional 120 billion yen to help provide better care for the aged, the disabled and those with small children.
On the issue of more permanent tax cuts for personal and corporate income, the package said the government would study the matter, and specifically said efforts would be made to reduce corporate income tax rates to “international standards” within the next three years.
The package also included a comprehensive plan to boost land transactions in an effort to help firms, especially financial institutions, dispose of their nonperforming assets. Under the plan, a body would be temporarily set up within the government to help mediate between creditors and borrowers to hasten transactions of collateralized land.
The scheme also calls for considering the use of money from the state-run postal savings and postal life insurance systems to invest in asset-backed securities to invigorate that market.
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