Japan's government should consider issuing more bonds to finance a planned tax cut, Prime Minister Junichiro Koizumi's right-hand man said yesterday, noting the tax reduction would be followed by hikes in the future.
Taku Yamasaki, secretary general of the ruling Liberal Democratic Party, said a bond issuance and an expenditure cut could be used to finance the planned drop.
"I think [the government] should consider both," he said. "Since we have taken off the ?30 trillion (US$250 billion) cap on bond issuance for fiscal 2003, it is possible to issue `tsunagi' [stop-gap] bonds," Yamasaki said on a news show on the Asahi television network.
Koizumi has said he would abandon the controversial cap on new government bond issues in the next financial year starting in April. The bond limit was a key reform goal aimed at reining in swollen government debt.
"Tsunagi" bonds are government debt issues to fill a revenue shortfall. The bonds are to be redeemed in a short time frame with income from other taxes.
Yamasaki indicated the bond issuance also meant a future tax hike, saying "government bonds need to be redeemed."
"The tax system will be revenue-neutral over the long term as tax rises and tax cuts are handled in a package," he said, adding tax cuts would precede this time.
He also said sales of state-held assets and curbs on government spending would also help make room for lowering taxes.
"We expect the economy will recover meanwhile, increasing tax revenues," he said.
Finance Minister Masajuro Shiokawa on Saturday proposed a tax cut of more than ?1 trillion (US$8.3 billion) mainly in corporate capital spending and research to help spur the country's slow recovery from recession. Koizumi said he is ready for a tax cut but never mentioned its scale.
Shizuka Kamei, former LDP secretary general, told a separate Sunday television programme the government should go ahead with a larger tax cut of around ?2.5 trillion. But a more cautious opinion was heard from State Minister for Economic and Fiscal Policy Heizo Takenaka.
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