Tax Reform to stimulate the Japanese economy

HIGUCHI Hirotaro
Vice Chairman
Keidanren

"The government is the sails, the people the wind, the nation the ship, and the times the sea." These words of Ludwig Borne, a German critic of the early 19th century, suggest that if a nation's citizens deliver the winds of support into the large sails that are their government's policies, the nation, like a ship, will be able to safely navigate the vast ocean and move toward achieving its objectives.

When comparing Japan's present situation with this ideal, one unfortunately cannot help but feel that we are very far from realizing it. Needless to say, politics and economics are the two closely connected, inseparable wheels of government policy. A situation in which Japan is ridiculed overseas as "a first-rate economy with a third-rate political system" does not bode at all well for our nation's future. Such times certainly require economic revitalization through political decisiveness.

To put an end to Japan's current economic doldrums, the government must act quickly to stimulate the real estate and stock markets through fiscal policy while ensuring the soundness of the financial system, thereby creating a healthy economy in which finances remain in line with the realities of the real estate and stock markets.

Specifically, the greater liquidity of land should first be promoted, Toward this end, the government is studying possible tax reform. In addition to reforming the taxation of gains on land transfers and real estate acquisition taxes, however, such measures as the early procurement of land for public undertakings and the expansion of joint projects between the private and public sectors should be implemented immediately. Such steps would facilitate quantifying and establishing write-off targets for the bad debt held by financial institutions.

Next, to revitalize the business environment, measures should be promptly taken to reduce the corporation tax rate and freeze land taxes. In Japan, the effective rate of corporate taxation, which includes local and other taxes in addition to the corporation tax, is the world's highest-and this has become a major cause of the nation's ongoing industrial "hollowing-out."

Concrete measures implemented thus far to revitalize the stock market include a decision to freeze estimated tax rates, the relaxation of regulations for public listing, and the formation of "mini" stock markets. Further measures that need to be taken include the abolishment of taxes on securities transactions and the relaxation of regulations governing the issuance of commercial paper.

In any case, tax reform is urgently needed if our nation's economy is to remain competitive and continue to grow in the 21st century.

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