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Tax cuts for the next fiscal year should not top 1.5 trillion yen, Finance Minister Masajuro Shiokawa said Tuesday, citing the country’s tight fiscal conditions.

In a regular news conference, Shiokawa reiterated that the tax cuts for fiscal 2003 should total around 1.5 trillion yen, the same figure he has maintained since summer.

“Taking into account the current fiscal conditions and the evaluation of and trust in the Japanese economy by other countries, we should be cautious when considering the issue,” Shiokawa said.

The finance chief’s remark came after Prime Minister Junichiro Koizumi said last week that the government should prepare for “sufficient” tax cuts in fiscal 2003, suggesting he wants to see an increase from the “more than 1 trillion yen” in tax breaks he had proposed earlier this year.

Over the weekend, Heizo Takenaka, minister in charge of economic and fiscal policy, also suggested the possibility of tax cuts to the tune of between 2 trillion yen and 2.5 trillion yen.

The government plans to carry out both tax cuts and tax hikes over a period of several years. Under the plan, the amount of tax cuts will exceed that of tax hikes for the first few years, but the amount of increase is to be raised later to offset a shortfall in tax revenues.

Cut now, raise later

Prime Minister Junichiro Koizumi on Tuesday defended his policy to balance quick tax cuts with future tax increases, brushing aside criticism from ruling coalition partner New Komeito that such a step may weaken the pump-priming effects of the tax breaks.

“A responsible government should not talk about tax cuts alone,” Koizumi told reporters at the Prime Minister’s Official Residence. “We should consider both (cuts and increases).”

Koizumi’s comments came in response to remarks by New Komeito chief Takenori Kanzaki, who has said the government’s plan to balance tax cuts and increases over a period of several years will probably not boost the economy.

In this regard, Chief Cabinet Secretary Yasuo Fukuda defended Koizumi’s tax policy at a news conference, saying, “We should have a certain framework (for tax cuts and increases) so that we can rehabilitate the government’s fiscal situation.”

The top government spokesman added that, without such a framework, it would be difficult to determine the size of the tax cuts, let alone the prospects for achieving fiscal reconsolidation.

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