Finance Minister Sadakazu Tanigaki said Tuesday the government will consider scaling back income tax cuts that have been in place since 1999 because economic recovery has taken root.
“Comparing economic situations between then and now, I think we have come to a stage where we can discuss such policy options,” Tanigaki told reporters, citing the need to fix Japan’s debt-ridden finances.
But he said the government must pay attention to the effects a measure of this kind could have on the economy.
Some ruling party lawmakers are skeptical about the proposed tax increase because as it might pour cold water on the economy by slowing down personal spending.
Chief Cabinet Secretary Hiroyuki Hosoda told a news conference, “I assume experts will discuss whether to end the tax-cut policy.”
He said the issue will be a key topic at discussions of tax revisions for fiscal 2005.
The comments came a day after Prime Minister Junichiro Koizumi made the first reference to phasing out the “proportional” tax cuts, signaling a possible reduction of tax breaks from fiscal 2005.
The tax cuts were introduced as part of the economic stimulus program drawn up by Prime Minister Keizo Obuchi’s administration.
The tax break allows 20 percent of income tax, or up to 250,000 yen a year, and 15 percent of residential tax, or up to 40,000 yen a year, to be deducted, giving more cash to middle-aged, high-income company employees.
Koizumi’s call to phase out the tax cuts may be connected to the government’s desire to raise tax revenue, making it possible to raise the state contribution to the national pension program from the current one-third to 50 percent by fiscal 2009.
The ruling coalition of Koizumi’s Liberal Democratic Party and New Komeito called for reducing or eliminating income tax cuts in its tax-reform guidelines for fiscal 2004, but there have been no specific plans drawn up to help reach the goal.
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