Japan vows caution on new debt, might review tax cuts
March 26, 2011, 11:10 pm TWN
TOKYO -- Japan needs to be careful about taking on new debt to fund relief and reconstruction after this month's deadly earthquake and tsunami, and may review its plan to cut the corporate tax, top economic officials said on Friday.
Finance Minister Yoshihiko Noda said the government aimed to get its first emergency budget ready by the end of April and suggested it would not rely heavily on extra borrowing to fund it, reflecting worries over Japan's massive public debt. The material damage from the magnitude 9.0 earthquake that unleashed a deadly tsunami on Japan's northeast on March 11 could exceed US$300 billion, the government estimated this week.
That makes it the world's costliest disaster even without the further impact of power cuts and a drawn out struggle to contain the damage at a stricken nuclear plant 240 km (150 miles) north of Tokyo. More than 27,000 people are dead or missing.
"We cannot easily increase government bond issuance," Noda told reporters, adding that the emergency budget would be compiled in cooperation with the opposition, whose help is needed to pass enabling bills in a divided parliament.
Speaking separately, Economics Minister Kaoru Yosano said that the government might need to reconsider its plan to cut the corporate tax rate by 5 percentage points from the fiscal year starting in April, given the reconstruction needs.
The effective tax rate for Japanese companies is higher than in most major economies at around 40 percent. The Finance Ministry has estimated the cut would reduce tax revenue by some 430 billion yen (US$5.3 billion).
"If the corporate tax cut serves to encourage employment, investment, research and development, that would be a step in the right direction," Yosano said. "But given the current situation, we need to rethink whether the corporate tax (cut) based on such thinking is something the whole society demands."
Economists polled by Reuters this week forecast Japan's biggest rebuilding effort since the post-World War II period could cost the government as much as US$250 billion, with the first emergency budget seen at around US$62 billion.