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Finance Minister Masajuro Shiokawa said Tuesday that proposed tax cuts for the current fiscal year will be carried out boldly and will be financed by spending cuts.

“I think the tax cuts can be financed by cuts in general expenditures,” Shiokawa said.

Tax revenues will increase if the economy is reinvigorated through economic revitalization measures, including tax cuts, he said.

Prime Minister Junichiro Koizumi and his ruling coalition partners agreed Monday to introduce tax cuts that will go into effect in January as part of a second antideflation package.

The measures include expanding tax incentives to promote research and development spending and investment by businesses, and an easing of the gift and inheritance taxes to help promote transfer of assets between generations.

Shiokawa said the tax measures, especially those for R&D spending and investment, should be conducted “boldly.”

The finance minister had said any tax cuts should be balanced by future tax hikes, but he is now leaning toward the idea of “fiscal neutrality,” under which tax cuts will be balanced by a wide range of measures, including spending cuts.

He said he hopes to outline the details of the tax measures around the end of August or early September.

Pro forma tax not tabled

Economics minister Heizo Takenaka said Tuesday a proposed new local tax on companies has not been discussed by the Council on Economic and Fiscal Policy, a key government panel chaired by Prime Minister Junichiro Koizumi.

“The council has never discussed the pro forma tax formally. I think council members are quite divided over that tax issue,” Takenaka, state minister in charge of economic and fiscal policy, told a news conference.

In a report presented to Koizumi last week, the government’s Tax Commission called for the introduction of the pro forma tax, which is designed to assess taxes on corporations on the basis of business size, such as the number of employees and the size of capital, rather than on profits.

Despite Takenaka’s remarks, a policy outline to be adopted by the CEFP on Friday is expected to include a line suggesting the new local corporate tax be considered as seen in a draft of the outline.

Takenaka said it is a matter of tax systems whether small- and medium-size companies will be forced to bear excessive tax burdens following the introduction of a pro forma tax.

Koizumi has called for lowering the effective corporate tax rate, and Hiromitsu Ishi, chairman of the government Tax Commission, has said that introduction of the pro forma tax should be considered as a step to help offset the impact of the tax cut on national finances.

Discussions on tax reforms have been separately made by the CEFP, the Tax Commission and the ruling Liberal Democratic Party’s powerful Tax System Research Commission.

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