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A key government panel on economic and fiscal policy is expected to recommend next month a partial privatization of employee pension programs and sweeping deregulation, government sources said Thursday.

They said that in its much-awaited policy paper due out in late June, the Council on Economic and Fiscal Policy will probably propose the privatization of such high-profile public entities as Japan Highway Public Corp., Japan National Oil Corp. and Haneda and Narita airports.

It is also likely to call for moving up privatization of Electric Power Development Co. from 2003.

The seven-point paper, being prepared by a task force headed by Economic and Fiscal Policy Minister Heizo Takenaka, is to follow policy initiatives of Prime Minister Junichiro Koizumi, who has vowed to push for change under the slogan “Structural reforms with no sanctuaries.”

Under the proposal, Japan’s employee pension plan, which is expected to face severe funding shortages as the society ages, will be drastically reorganized, they said.

The plan calls on the government to handle only basic public pensions while privatizing the remaining part of the scheme, in which benefits are linked to employees’ pay levels.

As for the privatization of special government-affiliated corporations, the Koizumi administration aims to cut all unnecessary subsidies and force entities to become more efficient and independent.

But the plan is certain to draw strong opposition from some in the government, the ruling parties and related industries that have long enjoyed vested interests in such entities.

According to the sources, the proposal is also likely to refer to the need to consider privatizing state-run universities and postal services.

It is also expected to include such measures as the introduction of a taxpayer numbering system, the reallocation of budget funds set aside for road projects and the introduction of environmental protection taxes.

Guidelines drafted

The Council on Economic and Fiscal Policy, the prime minister’s economic advisory panel, compiled draft policy guidelines Thursday featuring a set of structural reform measures aimed at reviving the economy.

The draft guidelines call for a thorough review of the national budget, including public works spending, and fundamentally resolving banks’ nonperforming loans.

The draft guidelines also underline the need to overhaul the social security system and re-evaluate the relationship between central and local governments, including a review on tax grants from the central to local governments.

The draft guidelines also call for tax reform to reinvigorate economic activity, and for the creation of 5 million jobs over the next five years to revitalize the labor market.

As for the fiscal 2002 budget, the guidelines emphasize Prime Minister Junichiro Koizumi’s pledge to limit new issuance of government bonds to under 30 trillion yen while reviewing the rigid budget shares in line with contemporary social needs.

Based on the draft, the economic panel is expected to work out details and formalize the final version this month. Government ministries and agencies will make their budget requests in August for the coming fiscal year according to the guidelines.

They reflect Koizumi’s determination to promote widespread structural reform, which he believes is necessary for full-fledged economic recovery.

Koizumi is expected to brief U.S. President George W. Bush on his reform programs based on these guidelines when they met June 30 in Camp David, Md.

Summary of policy proposal

Following are the main points of the proposal.

Privatization — To consider privatizing entities, including Narita and Haneda airports, Japan Highway Public Corp., Japan National Oil Corp., Urban Development Corp. and Housing Loan Corp., as well as state-run universities and postal services.

Tax and information technology measures — To provide tax breaks to entrepreneurs and individual investors in capital markets; to devise a fairer tax system by introducing a taxpayer numbering system; and to encourage competition in areas related to IT.

Social welfare — To privatize part of the nation’s employee pension scheme and boost unemployment insurance benefits on certain conditions; to merge the National Tax Administration with the Social Insurance Agency.

Job training — To make job training-related expenses tax deductible and provide vocational training for unemployed people.

Quality of life — To improve the quality and quantity of child-care centers and improve environmental standards in residential areas.

Decentralization — To review tax grants to local governments and promote privatization of affiliated corporations such as utilities.

Addressing structural rigidity — To reallocate revenues from automobile weight taxes for use in the general budget; to expand the use of road-specific revenues from gasoline excise taxes; and to introduce environmental protection taxes.

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