Japan’s Leader Favors Permanent Tax Cuts

Isolated by growing pressure for quick action to fix its anemic economy, Japan’s prime minister on Friday said for the first time that he would support a permanent tax cut to stimulate consumer spending.

The statement by Ryutaro Hashimoto at a campaign rally for the July 12 parliamentary elections followed his announcement the day before of a long-awaited plan to clean up the country’s banking crisis.

The moves, which represent an unusually bold approach for the tradition-bound country, come as the United States and other trading partners say they are losing patience with Japan’s inability to right its economy and create a market for goods from hobbled Asian neighbors.

“I hope we will have not temporary tax cuts, but so-called permanent tax reforms. I think we’ll move in that direction,” Hashimoto said. Until now, he had favored one-time tax breaks instead of longer-term tax relief.

Temporary tax cuts failed to stimulate the economy in the past because the Japanese--known for their high savings rate--simply squirreled away the extra money.

Officials contend that a permanent tax break will bolster consumer confidence, lead to greater spending and help Japan out of its worst recession since World War II.

The tax-cut talk was immediately welcomed by business leaders.

“The statement marks a step forward to realization of our demand,” Jiro Nemoto, chairman of the Japan Federation of Employers Assns., was quoted by Kyodo News agency as saying.

Permanent tax cuts seem more popular than the government’s “bridge bank” plan announced Thursday. The proposal--a radical alteration to a system that has long propped up unprofitable banks--calls for closing troubled lenders while providing bridge loans to clients.

A chief lieutenant in Hashimoto’s ruling party, Koichi Kato, said Friday that the bridge bank legislation would probably pass Parliament by early September, Kyodo reported.

Although many observers said it was a long overdue measure, critics pointed to the vague criteria and questioned whether it could be effectively implemented.

“The bridge bank scheme is little more than a first step toward financial revitalization,” said an editorial Friday in Nihon Keizai, Japan’s leading business daily.

In Washington, Treasury Secretary Robert Rubin said the measures were “potentially significant steps toward addressing [Japan’s] banking problems.” He urged Japan to act quickly to carry out the plan.

Hashimoto had previously resisted going beyond temporary tax relief measures for fear of ballooning the deficit, which he has pledged to shrink.