/www.bloomberg.com/ By Mayumi Otsuma
Tokyo, Nov. 26 (Bloomberg) -- Japanese Finance Minister Masajuro Shiokawa said next year's tax cuts should be limited to about 1.5 trillion yen ($12.3 billion), which is less than other ministers have proposed.
``The tax cuts should be about 1.5 trillion yen, the amount we have been discussing since summer,'' Shiokawa said at a press conference after Cabinet met. ``We must take into consideration the current financial state of the Japanese government.''
Some Japanese officials are calling for tax cuts to spur the world's second-largest economy, which is emerging from its third recession in a decade. On the other hand, tax cuts may reduce government revenue, increasing a national debt that's already the highest in the industrialized world.
Tax cuts ``above 2 trillion yen might raise questions,'' said John Richards, a strategist at Barclays Capital Japan Ltd. ``The signal is the government is not in the mood to cut taxes that much.''
Japan's national debt, which the government estimates is approaching 140 percent of gross domestic product, last week prompted Fitch Ratings to cut Japan's credit rating by one notch to a fourth-ranking AA-. That followed a decision by the government to spend an extra 3 trillion yen this fiscal year on job programs and public works.
Bad-Debt Drive
Prime Minister Junichiro Koizumi, who has vowed to curb the national debt, said yesterday Japan might need to consider cutting corporate tax rates to spur spending and investment in the fiscal year starting April 1.
``The problem is the issue of sources of funding,'' he told the budget committee of the upper house of parliament. ``I'm thinking now on how to work on that part.''
Koizumi today repeated that revenue declines from tax cuts should be covered by future tax increases to stop the expansion of public debt.
Financial Services Minister Heizo Takenaka on Sunday proposed tax cuts of up to 2.5 trillion yen to cushion the shock of the government's drive to speed the disposal of an estimated 52.4 trillion yen in bad loans at lenders.
The No. 244 bond, which carries a 1 percent coupon and matures in 2012, rose 0.045 to 100.090 as of 1:35 p.m. in Tokyo. Its yield fell 0.5 basis point to 0.990 percent. A basis point is 0.01 percentage point.
Unemployment is expected to rise as banks cut off delinquent borrowers, driving them into insolvency. Companies also are pressing the government. Hiroshi Okuda, head of Japan's biggest business group, Keidanren, today called for deeper corporate tax reductions.
Banks `Idle'
Shiokawa said banks should have acted sooner to dispose of bad debts, which have choked the financial system, depriving the economy of the fresh credit it needs to grow and contributing to a six-year slide in lending.
``Japanese bankers have been idle,'' he said.
Mizuho Holdings Inc. and three other top banks said yesterday they expect to lose a combined 305 billion yen this fiscal year as they speed up bad-loan disposals and the value of their shareholdings tumbles. The banks had previously forecast net income of 495 billion.
Shiokawa also said the government shouldn't use more taxpayer money to make up for an anticipated shortfall in the state-run unemployment insurance program.
``We haven't seen effects of bad loan disposals yet, and we want companies to first consider efforts on their own, though we are ready to extend more money for the unemployment program if needed,'' he said.
Health and Labor Minister Chikara Sakaguchi said the government should set aside money for the unemployment insurance program.