• Kyodo

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A fresh claim by Japan that it will not be a drag on world growth fell on a silent audience in a weekend meeting of finance ministers of the Group of Seven nations, where no one was openly critical of Japan but the lack of supportive remarks was notable.

With domestic wrangling still under way over specific economic measures, uncertainties remain over whether Prime Minister Junichiro Koizumi can deliver a convincing package when he attends a June 26-27 summit of the Group of Eight nations — the G7 plus Russia — in Kananaskis, Alberta.

In the two-day meeting in this eastern Canada port city, Finance Minister Masajuro Shiokawa outlined to his G7 partners Japan’s latest efforts to revive its struggling deflationary economy.

The move was yet another attempt by Shiokawa to persuade the G7 that Japan is committed to spurring its economy, after promising to draw up new economic steps, including tax cuts, at the previous meeting with the ministers held in Washington in April.

“I explained that we will promote (the steps) firmly as a new economic policy,” Shiokawa told the news conference. “There were comments (from other G7 ministers) expressing appreciation over Japan’s reform efforts,” he added.

A senior Japanese official told reporters that in response to Shiokawa’s comments about Japan’s economy, his G7 counterparts made remarks that they believe Japan recognizes its problems and is moving ahead with policies accordingly.

But the other G7 members — Britain, Canada, France, Germany, Italy and the United States — did not openly back Shiokawa’s plan.

However, U.S. Treasury Secretary Paul O’Neill urged Japan to carry out the measures when the Japanese minister briefed him in a separate meeting Friday. O’Neill expressed “expectations” about the plan, according to another Japanese government official.

Shiokawa was outlining Japan’s basic economic and fiscal policy blueprint, which will be finalized next week by the Council on Economic and Fiscal Policy, chaired by Koizumi.

Among the steps to be included in the plan are tax reforms, deregulation, efforts to dispose of nonperforming loans, steps to nurture leading businesses and the government’s plan to maintain fiscal discipline in drawing up the fiscal 2003 budget.

But the economic promises may prove to be far easier made than kept. Major political squabbling is expected to take place before the government can settle on specific reform steps.

The most explosive of the issues are tax reforms, the central plank of the plan. Which specific tax reform steps should be taken on what scale and when are questions that have yet to be answered.

There are three panels tasked with discussing the tax system — the Council on Economic and Fiscal Policy, the government’s Tax Commission and the Tax System Research Commission of the ruling Liberal Democratic Party — which further complicates the debate.

Business leaders and local government heads have also entered what is turning into a heated debate.

But at least one agreement has been reached.

Koizumi put an end to wrangling between the two government panels — the Council on Economic and Fiscal Policy and the Tax Commission — by calling for cutting the effective taxation rate on companies, a step called for by the council, which wants to cut taxes to boost the economy.

Critics of the tax panel say it focuses too much on securing revenue.

In order to carry out the tax cuts, the government is considering a plan to introduce a so-called pro forma tax system, which is designed to tax corporations on the basis of business size — such as the number of employees and the size of capital — rather than profits.

Under the system, companies in the red would be subject to taxes, while moneymaking firms could pay less without the government seeing a drop in tax revenue.

But much still needs to be worked out before the government can come up with a detailed package of steps, and even when it does, the measures could face major hurdles before they can be implemented.

Also making the outlook murky is the drop in Koizumi’s once-high support ratings. In recent opinion polls, disapproval ratings have overtaken approval ratings. Koizumi enjoyed about 80 percent support when he took power in April.

“I expect the tax debate to continue for a while yet,” a Finance Ministry official said.

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