This article is intially published at Japan Times
Tokyo - The government will set aside some 200 billion yen to realize a key policy pledge of raising monthly child allowances, sources close to the matter said Monday.
The finance and welfare ministries have agreed after intense discussions that the government will reduce tax deductions for salaried workers and others in order to secure the funds to pay for the policy of raising the allowance to 20,000 yen per month from the current 13,000 yen for children aged under 3.
The issue had been a sticking point in the government’s efforts to work out a draft later this month of the state budget for the next fiscal year starting in April and to outline the country’s tax reform plans for fiscal 2011.
On the childcare benefits, the government has apparently withdrawn an earlier pledge to pay 26,000 yen a month to all children from fiscal 2011 until they graduate from junior high school, normally at the age of 15. This reflects Prime Minister Naoto Kan’s resolve to restore Japan’s fiscal health, the worst among major developed economies.
Some more issues remain, requiring debate within the government, especially a proposal to reduce corporate income tax and help improve the competitiveness of Japanese companies.
The proposal, strongly backed by the Ministry of Economy, Trade and Industry and business leaders, would cut the effective rate of tax by 5 percentage points from the current 40%, relatively high by international standards and believed to have undermined corporate appetites for capital spending.
While the Finance Ministry has urged the industry ministry to show plans to create funds to cover revenue shortfalls as a result of the possible cut, the sources said, the Tax Commission, a government panel headed by Finance Minister Yoshihiko Noda, is set to scale down the deduction arrangement for inheritance tax and secure around 200 billion yen to partly finance the envisaged corporate tax cut.
The panel is expected to compile a tax reform outline before Kan’s cabinet approves it possibly on Thursday, the sources said.