Prime Minister Junichiro Koizumi is seeking tax reform to revive economic vitality, but he wants to limit tax cuts to the extent that they do not exacerbate the budget crisis. In other words, he is opposed to stimulating the economy at the expense of fiscal discipline. So no major tax cuts are planned for fiscal 2003.
The prime minister's "no revenue, no tax cut" position -- which is reflected in tax discussions at the government's Council on Economic and Fiscal Policy and Tax Commission, stands to reason. If taxes are reduced on a large scale through bond issues, that will only inflate the already bloated government debt -- a development that could lead to a further downgrade of Japan's international credit ratings.
What's more, long-term prospects for self-sustaining economic growth will become further clouded. So, in principle, tax cuts will have to be matched by spending cuts or tax increases, or both, in ways that will help reinvigorate the economy over the long haul. In this sense, corporate tax reform is of great importance. The prime minister, as well as the Tax Commission, is in favor of introducing a local business tax based broadly on size, not income.