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The ruling Liberal Democratic Party finalized a large package of tax revisions Wednesday allowing for a record 9.3 trillion yen in tax cuts for fiscal 1999.

The sum includes 6.3 trillion yen in individual and corporate income tax cuts agreed on earlier, as well as 1.2 trillion yen in housing-related reductions.

The annual package is a wide-ranging offer of tax cuts to shore up the ailing economy, tools to please political allies and measures to make the nation’s financial markets internationally attractive.

Some of the LDP’s proposals reflect the extent to which the ruling party needs an alliance with the Liberal Party.

For one, the LDP apparently tried to raise the sum of the tax cuts to 10 trillion yen, a level demanded by the Liberal Party.

The introduction of income tax deductions for households with children was another key concession.

Both parties “shared the concern about the current economy,” said Yuji Tsushima, a top legislator on the tax panel, at a news conference. “We (the LDP) were not aiming at a figure in the beginning, but made efforts to reach the limit, and as a result we got to bring the figure to some 90 percent of what was demanded.”

Based on an agreement struck by the two parties earlier in the day, the package also includes a plan to use revenues from the divisive consumption tax to finance welfare-related operations, such as basic pensions.

Now that the LDP’s package is complete, compilation of the fiscal 1999 state budget, due to be finalized by the end of next week, heads into the home stretch.

The government will submit its tax revision bills to an ordinary Diet session scheduled to start in mid-January.

The most important item in the LDP’s tax package is the housing loan deduction.

Individual and corporate income taxes aside, a housing loan deduction bears the most weight among tax incentives for particular policy purposes because housing starts spur a chain reaction in domestic demand.

The proposed deduction, an expanded version of the existing system, would let first-time home buyers in 1999 and 2000 write off up to 5.9 million yen over a period of 15 years. This could effectively redeem all the income tax a buyer has paid for one year, depending on income level and outstanding loans. The current deduction only provides for tax breaks of up to 1.8 million yen over six years.

In addition, another provision entitles home buyers to a housing tax deduction for losses incurred on sales of their old homes when buying new ones, and can be taken in combination with the loan deduction. At present, buyers can either take the rehousing loss deduction or the loan deduction, not both.

A controversial interest payment deduction earnestly called for by some economists and business associations was rejected by the LDP’s tax panel after harsh debate.

Beneficial to high income earners, it could have encouraged more spending for housing purchases, but the Finance Ministry opposed the scheme out fear that a perception of unfairness would continue for decades.

Among other income tax deductions introduced in the package, one for households with children under the age of 23 is estimated to be worth about 300 billion yen. The measure would apparently blunt an expected rise in taxes for households of two parents and two children.

Even if tax cuts for child care and education in the LDP’s package are taken into account, such households will actually face a heavier tax burden in fiscal 1999 than in fiscal 1998 if their annual income is 7.93 million yen or less, the Finance Ministry said Wednesday.

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