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Thursday, Nov. 20, 2008
No bonds, at least for now
Nakagawa hints falling tax revenues could force rethink on policy
Despite growing calls for the government to spend more to stimulate the economy, Finance Minister Shoichi Nakagawa reiterated Wednesday his ministry currently has no plans to issue deficit-covering bonds. But he also indicated the tax revenue situation may make them necessary.
Nakagawa is one of the most outspoken advocates in the Cabinet for further stimulus, as opposed to fiscal and economic minister Kaoru Yosano. Nakagawa once openly mentioned the possibility of issuing deficit-covering bonds, but he later retracted it.
"We have no plans to issue deficit-covering government bonds," Nakagawa said in an interview with The Japan Times, vowing efforts to achieve the government's goal of restoring a primary budget surplus by fiscal 2011. But he acknowledged tax revenues are falling sharply.
"Although we want to avoid issuing deficit-covering government bonds as much as possible (to cope with the) decline in tax revenues, we will make a judgment by considering the outlook of the revenues," he said.
He emphasized that reviving the economy and improving people's livelihoods are the administration's priorities.
"We have a plan to improve the economy and rebuild the nation's finances," he said.
The Cabinet Office said Monday that the economy shrank at an annualized pace of 0.4 percent in the three months through September, posting its second consecutive quarter of negative growth amid the global financial crisis and indicating Japan has entered a recession for the first time since 2001.
Nakagawa said he can't tell when the economy will return to a recovery path, since the situation now is in "a very downward phase." He added that the U.S. and other economies are also in bad shape.
Nakagawa defended the controversial plan to distribute some ¥2 trillion in cash handouts. "Are you OK if we don't provide (the cash gifts)?" Nakagawa asked. "Many people are suffering while commodity prices are rising and the economy is sluggish."
Critics argue that the cash should only go to households that need it, and not be handed out indiscriminately. Others say the benefits will not help prop up the economy.
"We have to say such criticism is unfounded," Nakagawa said.
He would not specify, however, when the government will submit the second supplementary budget, which includes the cash handouts, to the Diet — another point of contention in the legislature.
"Although we are working very hard, we cannot estimate tax revenues yet," Nakagawa said. "It will take more time."
Declining comment on the possible timing of a Lower House dissolution and general election, Nakagawa indicated his willingness to take measures to revive the economy.
"Since we place priority on the economic recovery, we will work to ensure that the second supplementary budget — and the compilation, enactment and execution of next year's budget — won't be delayed," he said.
On a bill that would allow the government to inject public funds into financial institutions to bolster their capital bases, Nakagawa criticized the Democratic Party of Japan.
The DPJ intends to avoid voting on the proposed legislation until the Liberal Democratic Party-New Komeito ruling bloc submits the second supplementary budget.
"(The DPJ) should never be allowed to hold the important financial reinforcement law hostage," he said.
Nakagawa meanwhile is reluctant to raise the consumption tax at present.
"Since the economy is in extremely bad shape and people's livelihoods are hurting, raising the consumption tax immediately would cause further damage," he said.
But the tax is important because it has to be a stable revenue source to support the social security system, Nakagawa said.
"Within three years, we will somehow manage to improve the economy, and then enter discussions on the consumption tax as a revenue source," Nakagawa said, adding he will wait for the results of the ruling bloc's ongoing tax discussions.