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Monday, Jan. 10, 2000

Make 'Rebuilding Confidence' the government slogan for 2000

Last year a series of mishaps shook our faith in various things we have grown to trust over the years, from the H-II rocket failure and the crumbling tunnels of our shinkansen lines to the nuclearcriticality accident in Tokai, Ibaraki Prefecture.

The same thing could besaid about state policies.

Rather thanmoving forward, the state decided to regress by delaying collection of premiums for the public care insurance system for the elderly, which begins in April. It also recently agreed to delay, by a year, the scrapping of the deposit protection system.

Postponing what has already been decided will only damage public trust in the government's policymaking process.

The government has predicted that the nation's gross domestic product will grow 1 percent in fiscal 2000 and hopes to bring about a full-scale recovery by using public works spending to smooth the transition to private-sector demand.

For that to happen, however, it is imperative for individual consumers and businesses -- the main players in creating private-sector demand -- to have firm confidence in the government's policies.

In this light, the tax reforms proposed for fiscal 2000 have become a source of concern.

The plan fails to present avision of how the national tax system should change. Consumers and executives, unable to get a clear idea of the nation's future socioeconomic structure, may remain cautious in their economic activities.

2000 is supposed to usher in large-scale industrial reorganization, but the government says tax code revisions to facilitate corporate spinoffs and the consolidated tax return system have been postponed because the Finance Ministry's Tax Bureau has not completed preparations.

Corporate executives must have been planning reorganization on the assumption that, following revisions to the Antimonopoly Law and Commercial Code, relevant tax reforms would be implemented to facilitate corporate spinoffs. It is totally unacceptable these plans will have to be put on hold for one or two years due to a mere administrative delay.

Meanwhile, many of the key decisions in the latest tax reform package resulted from bureaucratic negotiations among government ministries and agencies. As a result, many of the reforms were proposed as special measures based on legislation under each ministry's jurisdiction, rather than as amendments to the main provisions of the Tax Law. Thus, it appears that the clock has begun turning backward since the Law on Special Measures for Industrial Revitalization was enacted last summer. And the trend against deregulation seems to be accelerating.One example is the special measures on taxation of capital gains resulting from stock sales by designated small and medium-size companies. It allows them to take a 75 percent deduction on taxable profits from stock sales, but firms that can benefit from the measures will have to be "designated" under a special temporary legislation to promote "creative activities" by small and medium-size companies.Another measure in the package -- to freeze taxation of reserve funds held by family-owned companies for two years -- will be applied only to firms categorized as "small and medium-size" by the law for promoting creation of new businesses, or those recognized as such under the law. Furthermore, the newly created special rules to reduce the tax rates on business registration will be applied only to business restructuring plans officially recognized under the Law on Special Measures for Industrial Revitalization.

Corporate managers will not know if they can benefit from these special measures until they actually apply for them. In many cases, the decisions will be made at the discretion of the bureaucrats in charge.

Such steps run counter to the long-running movement to reform big government. People have been trying to minimize administrative discretion in policy matters and get an equal footing on taxation. It will be extremely unfortunate if the bureaucrats decide to waylay tax reforms vital to carrying out industrial reorganization just so they can focus on protecting their own narrow interests.

The government is responsible for putting its policies back on track and rebuilding the public trust, and that will be the foundation for building a full-scale economic recovery this year.

Yoshio Nakamura is managing director of the Japan Federation of Economic Organizations (Keidanren).

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The Japan Times

Article 5 of 7 in National news

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