Finance Minister Masajuro Shiokawa said Tuesday he would tolerate proposed tax cuts of 2.5 trillion yen or more if the drop in tax revenues were to be balanced out in the long run.
Like some other ministers, however, he voiced opposition toward a plan to use public pension funds to purchase exchange-traded funds as a means of bolstering the stock market.
“I would not mind if tax cuts add up to 1 trillion yen, 1.5 trillion yen or 2 trillion yen,” Shiokawa told a news conference.
“If the increases and decreases (in tax revenues) are balanced out within a certain time frame, the expansion of the amount can be arranged.”
Shiokawa added that he is not against reductions in the corporate tax, provided they are effective in bolstering the economy.
“If reductions in corporate tax would have immediate effects, they should be considered,” the minister said. “But in that case, their effects would have to be explained to the public in a way that would win approval,” because corporate tax cuts would only benefit profitable firms that pay the tax.
The comments came a day after private-sector members of the Council on Economic and Fiscal Policy, a key government panel, proposed tax cuts of more than 0.5 percent of the nation’s gross domestic product, or more than 2.5 trillion yen.
The members said part of these reductions should be in the form of permanent taxes, including the corporate tax.
The Finance Ministry, which fears a drop in tax revenues, has opposed expanding the size of the tax cuts. It has also opposed permanent tax cuts, including a reduction in the corporate tax.
But this attitude may be falling out of favor with Prime Minister Junichiro Koizumi, who has often taken the side of the Finance Ministry in the past.
Shiokawa quoted Koizumi as saying in Monday’s panel meeting that the Finance Ministry is very negative toward tax cuts.
“He said he wants (the ministry) to be more aggressive on the issue,” he said.
Shiokawa meanwhile voiced opposition toward a plan to use public pension funds to artificially prop up the sagging stock market.
“Public pension reserves are not funds owned by the state,” he said. “I wonder if it is appropriate to say, ‘do this, do that’ while not even covering the risks.”
But he also said he would be happy if public pension funds bought the ETFs on their own initiative.
Financial Services Minister Hakuo Yanagisawa also opposed the plan.
“If the proposal is considered as a PKO (price-keeping operation), I do not think it is good,” Yanagisawa said.
Yanagisawa said, however, that ETFs may be a desirable product for pension funds for portfolio investment.
The ruling coalition on Monday proposed using public pension reserves, Bank of Japan funds and money from postal savings and postal insurance to buy ETFs, which are funds linked to the index prices of stock markets rather than individual stocks.
But Chikara Sakaguchi, minister of health, labor and welfare, told a separate news conference that the Welfare Pension Insurance Law would not allow purchases of ETFs by public pension reserves.
“The use of pension reserves is limited to benefiting only those insured,” Sakaguchi said.
He also said it is not desirable to use the funds to maintain share prices, as he believes such moves would damage the credibility of the pension system.
Yanagisawa rejected a proposal that the state-run Resolution and Collection Corp. purchase banks’ nonperforming loans at “effective” book value instead of at market value, another proposal floated for the economic package.
“I think RCC’s purchases should be conducted at market value,” Yanagisawa told a regular news conference.
Yanagisawa said the current framework under which RCC purchases loans at market value has been effective.
On Monday, Financial Services Agency Commissioner Shokichi Takagi also said the existing framework is appropriate for the disposal of bad loans.
Effective book value means the book value of the loan minus the loan-loss reserves set aside by the bank. Market value would be lower.
Yanagisawa meanwhile said there is no need to inject major banks with public funds to accelerate their disposal of nonperforming loans.
Private-sector members of Koizumi’s council called for a prompt injection of funds into troubled banks at a meeting on Monday.
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