Japan’s Hashimoto Vows to Seek Tax Cuts but Offers No Details

Facing grim poll numbers five days before key parliamentary elections, Japanese Prime Minister Ryutaro Hashimoto on Wednesday promised to seek permanent tax cuts next year--but frustrated financial markets by giving no specifics.

For months, the U.S. government and international markets have been clamoring for permanent tax cuts to stimulate the moribund Japanese economy--and thus help propel the rest of Asia out of its slump. Although the yen rose quickly Wednesday, it weakened when it became clear that Hashimoto would supply no details about the size and scope of the tax cuts, or how they would be paid for, given Japan’s mushrooming budget deficit.

Some observers expressed dismay that the election-week announcement had reduced the vital tax-reform issue to a populist campaign ploy for the ruling Liberal Democratic Party. Others saw the government’s fitful moves as further evidence of Japan’s failure to exercise the decisive leadership needed to put the world’s No. 2 economy back on sound financial footing.

“Are we walking in the right direction step by step? The answer is very clearly yes, but questions remain on the speed of implementation and the credibility of implementation,” J.P. Morgan economist Jesper Koll said.

Hashimoto’s statement was his third pronouncement in six days on the tax question and was meant to clear up confusion among voters, investors and the media over his earlier remarks.

“I want to make tax cuts from next year that the public would support as the result of a permanent reform of the tax system,” Hashimoto said.

The prime minister repeated a previous pledge to lower corporate taxes within three years and said the minimum threshold for paying income taxes will not be raised. A Japanese family must earn about $26,000 before it is required to pay income tax, significantly higher than in the United States and other Western nations.

The tax cut controversy began Friday, when Hashimoto said he hoped the national commission now studying tax reform would come out in favor of “not one-time cuts but permanent tax reforms,” a statement that was widely interpreted to mean permanent tax cuts. Foreign Minister Keizo Obuchi repeated those assurances during a visit Saturday by U.S. Secretary of State Madeleine Albright.

On Sunday, apparently under pressure from LDP members worried about how to finance the tax cuts, Hashimoto backpedaled, noting that he had not promised tax “cuts,” only tax “reforms.” Officials later retracted Obuchi’s statements, noting that “tax reforms” meant only that the system would be made cleaner and fairer.

A senior Japanese official conceded that Hashimoto’s message had become “garbled,” but said the international markets had also failed to pay sufficient attention to the careful wording of his original remarks.

On Tuesday, all major Japanese newspapers published public opinion polls indicating that the LDP is likely to fare poorly in elections Sunday for the upper house of parliament, a race that is being seen as a referendum on the Japanese economy.

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Times staff writer Valerie Reitman in Tokyo contributed to this report.