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The appointment of Masaaki Honma as head of the Tax Commission is widely viewed as yet another setback for the Finance Ministry, which is struggling to promote fiscal consolidation under a progrowth administration led by Prime Minister Shinzo Abe.

The Finance Ministry, often viewed as the most powerful ministry because of its control over the state budget, is now watching its influence on the tax reform debate decline.

Honma is in favor of lowering corporate taxes to revitalize business but is reluctant to raise the consumption tax.

His predecessor, Hiromitsu Ishi, was a staunch advocate of hiking the consumption tax to cover policy-related expenditures, including social security.

The Finance Ministry, which effectively controlled the tax panel, wanted Ishi to stay on. But Abe rejected it, apparently because Ishi’s position contradicts his idea of prioritizing economic growth over fiscal reform.

Debate on the consumption tax has been effectively shelved until next fall to avoid fallout hitting the ruling bloc in next summer’s House of Councilors election.

Abe’s appointment of Koji Omi as finance minister when he inaugurated his Cabinet in September was also a problem for the ministry because the 73-year-old veteran lawmaker is not inclined to take suggestions from bureaucrats, observers said.

Omi indicated Monday in Osaka that the government will consider eliminating the tax on retained profit at family-owned companies, because it is “a drag on small and midsize businesses.”

The following day, the finance minister admitted at a news conference that he made the remarks without discussing the matter with the bureaucrats.

Asked about Omi’s remarks, Vice Finance Minister Hideto Fujii looked uncomfortable at a regular news conference Monday evening. He said Omi’s remarks were unanticipated.

“We have to wait for debate at the government’s tax panel,” Fujii said.

The government’s decision to let the Cabinet Office serve as the tax panel’s secretariat instead of the Finance Ministry was also a stinging blow.

The strategy of the Finance Ministry is to lead debate at the panel, and it is usually taken for granted that the ministry will serve as its secretariat. This allows it to adjust the detailed meeting schedules, with a little help from the Internal Affairs and Communications Ministry and the Cabinet office.

Not anymore.

Despite grumbling in the Finance Ministry, Cabinet members reacted coolly to the change, saying a government ordinance stipulates the Cabinet office is supposed to be the secretariat of the government tax panel.

Even Omi didn’t seem concerned.

“I don’t see any problem for having the Cabinet office acting as the secretariat of the tax panel,” he said.

A senior Finance Ministry official said it would wash its hands of the matter.

“We do not intend to make a fuss about the change because it is what politicians have already decided.”

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