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The government and the three ruling parties compiled an additional package of antideflation measures Monday that includes tax cuts in fiscal 2002 and the creation of special deregulation zones to promote private-sector activities.

The package was agreed on at a meeting of Prime Minister Junichiro Koizumi representing the government and the Liberal Democratic Party, New Komeito leader Takenori Kanzaki and New Conservative Party chief Takeshi Noda.

The package’s tax measures are centered on breaks to promote investment and corporate research and development.

The inheritance and gift taxes would be lowered to encourage the transfer of financial assets from older to younger generations in a bid to spur spending.

These tax steps would be introduced within the current fiscal year due to the ruling block’s pressure on the government to quickly shore up the country’s fragile economy.

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

To finance the tax reductions, the government aims to consolidate and scale down some tax deductions currently in place rather than depend on more government bond issuance. The size of the latest tax cuts, therefore, is expected to remain small.

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 salvage the economy.

But the financing plan for the latest tax breaks would allow the prime minister to keep his 30 trillion yen bond-cap pledge for this fiscal year, because the proposed retroactive cuts would be logged in the fiscal 2003 budget.

In a bid to accelerate the government’s structural reforms, the package seeks the establishment of special zones in which regulations would be drastically eased to promote private-sector activities. The leaders agreed to quickly work out the specifics of the zones.

In addition, the antideflation package calls on the Financial Services Agency to draw up a midterm vision of the nation’s financial system so economic revitalization can be firmly supported by the financial side.

Meanwhile, the package does not mention the controversial issue of postponing the full-scale introduction of caps on deposit insurance protection scheduled for April.

The first phase of the deposit insurance cap applied to time deposits and was launched April 1. It limits the government guarantee to up to 10 million yen per depositor per bank.

The ruling parties are urging the postponement of the complete introduction of caps, which will apply to regular bank deposits. They are concerned that depositors will withdraw their funds from regional financial institutions, which provide liquidity to local businesses.

At a news conference Monday, however, Financial Services Agency Commissioner Shoji Mori shrugged off calls for an extension of the guarantee, stating that financial institutions should first carry out “management reforms to win the trust of depositors.”

DPJ blasts package

The Democratic Party of Japan said Monday the new package of antideflation measures agreed upon by the ruling coalition partners day contains no original ideas.

“It lists a bunch of policies that have already been hammered out and issues that are to be considered from now on,” the nation’s largest opposition party said in a statement issued under the name of Katsuya Okada, head of the DPJ Policy Research Committee.

“There is nothing new. It is obvious Prime Minister Junichiro Koizumi lacks policies to regain the health of the financial system.”

The statement goes on to describe as “aberrant” discussions on tax reforms between the Council of Economic and Fiscal Policy, led by Koizumi, the government’s Tax Commission and the Tax System Research Commission of the Liberal Democratic Party.

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