Abenomics To Face Stern Tax Cutting Test

Prime Minister Shinzo Abe faces rising pressure to expand tax relief for Japan’s companies after the longest slump in business investment since 2009, setting up a potential battle with the Finance Ministry.

Officials will unveil tax breaks for capital spending in coming months, according to 15 of 16 economists surveyed by Bloomberg News — a step Finance Minister Taro Aso has backed. Aso opposes a broader cut in corporate tax rates, even after a slide in investment since the start of 2012, and his ministry has a history of shielding revenue.

With analysts at banks from HSBC Holdings Plc and Mizuho Securities Co. to Royal Bank of Scotland Group Plc predicting limited impact from steps such as accelerated depreciation allowances, lobbying may intensify for stronger action. At issue for Abe is sustaining confidence in his recipe for ending Japan’s stagnation while addressing concern about the nation’s fiscal sustainability.

“Cutting corporate tax rates will require strong political clout,” said Shigeki Morinobu, a former director of the Ministry of Finance’s tax bureau. “It’ll be a litmus test for Abenomics.”

The Ministry of Economy, Trade and Industry said last week that lowering the effective corporate tax rate is an “important issue,” while Abe’s coalition partner, the New Komeito party, said that reductions could counter the blow to the economy from a sales-tax increase planned for April.

Bloomberg

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