The tax panel of the ruling Liberal Democratic Party agreed Wednesday to propose radical tax breaks for housing loans for fiscal 1999, calling the allowance “the largest issue” in the government’s efforts to stimulate the moribund economy.

But the LDP’s Research Commission on the Tax System did not settle on specifics, such as whether to introduce a new income tax deduction system for interest payment on housing loans.

Housing-related tax cuts are the most controversial element of a comprehensive tax revisions package being prepared for the next fiscal year, which begins April 1. The revisions are expected to be released Wednesday.

The commission’s chairman, Yoshiro Hayashi, ordered the Finance Ministry and the Construction Ministry to hammer out details so that the issue can be finalized by the panel by Tuesday. Yuji Tsushima, a panel leader, said no clear direction was set during the day’s executive meeting or a later subpanel session. But some of the participating legislators told reporters they felt the panel would probably go ahead with a proposed deduction system on interest payment.

Under the system, interest payments would be deducted from income before taxes. Proponents say this would encourage high income earners to spend more money to build houses, including second homes.

Business associations are supporting the idea because housing starts generally have a knockdown effect on domestic demand. The Construction Ministry is on their side.

Critics say this system would unfairly favor the rich because the amount of the tax cuts is greater for higher income brackets. or example, if 1 million yen is deducted from taxable income in a given year, it amounts to 370,000 yen in tax cuts for the highest income bracket and 100,000 yen for the lowest taxable income bracket, each in the case of a model family of four. The Finance Ministry is opposed to the scheme.

The issue thus comes down to a choice between what some say could trigger an economic recovery and fairness.

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