• Kyodo News


An advisory panel to the finance minister will call for “utmost efforts” to cut spending in the fiscal 2008 budget by curbing growth in social security costs, according to a draft of the recommendation.

In its proposals on spending and revenue reform, the Fiscal System Council also said the government needs to review the distribution of two local corporate taxes — the corporation enterprise tax and corporation inhabitant tax — as part of efforts to narrow disparities in tax revenues between urban and rural areas.

Revenues from the two taxes tend to concentrate in the metropolitan areas where large companies have their offices and operational bases, and thus widen the gap between densely and sparsely populated areas, according to analysts.

Narrowing disparities in tax revenues between urban areas and the countryside has been a major political issue for Prime Minister Shinzo Abe.

The panel is expected to submit the recommendation to Finance Minister Koji Omi on Wednesday. It is likely to be reflected in the economic and fiscal guidelines that the government plans to draw up in mid-June.

The draft asks the government to keep working on spending cuts without interruption to achieve stable development of the economy and society.

The panel said the government needs to further improve its finances even after achieving a primary balance, which is annual tax revenues minus outlays other than debt-servicing costs.

As the first step toward long-term fiscal health, the government aims to achieve a surplus in the balance at the national and local levels in fiscal 2011.

The draft says the government should address tax reform from this autumn to secure revenue sources to cope with ballooning social security costs amid the graying of society and low birthrate. But it stops short of proposing specific measures such as raising the consumption tax rate from the current 5 percent.

The panel also said it is necessary to introduce a market mechanism in funding for national universities and to curb medical costs.

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