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Prime Minister Junichiro Koizumi on Thursday proposed making tax cuts due in fiscal 2003 retroactive to the current fiscal year as part of a second antideflation package.

The proposal, which came at a meeting of key economic ministers and ruling coalition leaders, signifies a shift in policy toward quick cuts. Koizumi had been reluctant to implement tax cuts by the end of fiscal 2002, fearing doing so could force him to abandon his 30 trillion yen cap on new government bonds.

“Some tax reform measures for fiscal 2003 can be implemented from Jan. 1,” Koizumi told reporters. “I want such a step to be discussed as part of desirable tax reforms.”

Koizumi’s approval of retroactive tax cuts could be seen as backpedaling on his fiscal reform drive and giving in to international and domestic pressure to swiftly shore up Japan’s fragile economy, which has been plagued by prolonged deflation.

The ruling coalition, meanwhile, continues to haggle over a promised antideflation package, with the ruling coalition demanding further details on the tax cuts. Koizumi, New Komeito leader Takenori Kanzaki and New Conservative Party chief Takeshi Noda are scheduled to finalize the antideflation package on Monday, and the government and coalition will try to hammer out their differences by then.

The proposed measures call for legislation next year that would reduce corporate taxes to promote research and development as well as investment.

The government also proposed breaks for the gift tax to encourage the transfer of financial assets from the elderly to younger generations in hopes of boosting spending.

Under the plan, the government aims to legislate the tax cuts early next year, and make them retroactive to January 2003, thus making tax breaks within fiscal 2002 possible.

To finance the reductions, the government aims to consolidate and scale down some of the deductions currently in place and avoid increasing government bond issues. Thus, the size of latest tax cuts is expected to remain small.

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