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FOCUS: Government considering tax cut for child-raising.

TOKYO, March 30 Kyodo

The government and ruling parties have set up a consultative body to study measures to tackle the falling birthrate for compilation in June, including a tax reduction to support child-raising, but opposition to such a cut is expected from some quarters.

The council is headed by Chief Cabinet Secretary Shinzo Abe, and both he and Kuniko Inoguchi, state minister in charge of measures to counter the birthrate drop, want to tackle the issue through political initiatives, political sources said.

But the Finance Ministry and the Tax Research Commission of the ruling Liberal Democratic Party (LDP) are opposed to a tax cut due to severe financial circumstances, the sources said.

At the council's first meeting held at the prime minister's official residence on Thursday last week, Inoguchi said there is also a strong demand from local governments to cut income tax for families raising children.

Hidenao Nakagawa, chairman of the LDP's Policy Affairs Council, supported the idea, saying, ''We should discuss drastic economic support measures, such as lower taxes depending on the number of children.''

There was no objection to the proposal by Nakagawa, a close aide to Prime Minister Junichiro Koizumi, and the tax reduction was added to the agenda to be debated by the council.

In 2003, the Koizumi administration enacted a law obliging local governments and business enterprises to work out action plans to support child-raising and took measures against the dwindling number of children, including allowances for children and nursery schools, and subsidies for enterprises.

But the decline in the number of children could not be halted, and the fertility rate recorded a postwar low of 1.29 both in 2003 and 2004. To deal with the situation, Inoguchi and others studied a child-raising tax cut said to be effective in France and sought cooperation from Nakagawa and Abe.

In a news conference on Monday last week, Hakuo Yanagisawa, chairman of the LDP's Tax Research Commission, expressed reservations about tying up with the council, saying, ''They can make a request, but there is no need for us to poke our noses into it.''

Political sources said the commission, which overseas the entire tax system, is interested in a tax reduction for child-raising. Actually, the commission has time and again discussed the issue. Yanagisawa is assuming such an indifferent attitude because of the commission's taxation scenario, the sources said.

They said the commission wants to use the tax cut as a cushion to lessen resistance to a consumption tax hike to be implemented possibly after Koizumi steps down from the premiership in September.

The Finance Ministry shares the same position. A high-ranking ministry official said, ''Can we maintain a fair tax system if a lower tax is applied each time a new baby is born?''

The Ministry of Health, Labor and Welfare, which has been in charge of measures to tackle the decline in the birthrate, is also not willing to support the tax reduction. A high-ranking ministry official said, ''The effect of the tax cut would not spread to low income earners. The continuation of what has been already done and its expansion are important.''

Against this ''containment policy,'' Inoguchi and others are determined to incorporate a tax reduction in a ''big-boned'' reform plan (basic policies for economic and fiscal policy management and structural reform) to be decided on by the Cabinet in June with backing from Nakagawa and Abe, political sources said.

The sources said Inoguchi's camp plans to achieve a breakthrough by suppressing their opponents with the authority of Koizumi, who has remained tightlipped about the issue, the sources said.
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Publication:Japan Policy & Politics
Date:Apr 3, 2006
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