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By Tetsushi Kajimoto and Shinji Kitamura
March 25, 2011 1:16 AM EDT
Japan needs to be careful about taking on new debt to fund relief and reconstruction after this month's deadly earthquake and tsunami, and may review its plan to cut the corporate tax, top economic officials said on Friday.
Finance Minister Yoshihiko Noda said the government aimed to get its first emergency budget ready by the end of April and suggested it would not rely heavily on extra borrowing to fund it, reflecting worries over Japan's massive public debt.
The material damage from the magnitude 9.0 earthquake that unleashed a deadly tsunami on Japan's northeast on March 11 could exceed $300 billion, the government estimated this week.
That makes it the world's costliest disaster even without the further impact of power cuts and a drawn out struggle to contain the damage at a stricken nuclear plant 240 km (150 miles) north of Tokyo. More than 27,000 people are dead or missing.
"We cannot easily increase government bond issuance," Noda told reporters, adding that the emergency budget would be compiled in cooperation with the opposition, whose help is needed to pass enabling bills in a divided parliament.
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"Even if we craft the extra budget, it would not mean a thing if it fails to pass the parliament," he said.
Speaking separately, Economics Minister Kaoru Yosano said that the government might need to reconsider its plan to cut the corporate tax rate by 5 percentage points from the fiscal year starting in April, given the reconstruction needs.
The effective tax rate for Japanese companies is higher than in most major economies at around 40 percent. The Finance Ministry has estimated the cut would reduce tax revenue by some 430 billion yen ($5.3 billion).
"If the corporate tax cut serves to encourage employment, investment, research and development, that would be a step in the right direction," Yosano said. "But given the current situation, we need to rethink whether the corporate tax (cut) based on such thinking is something the whole society demands."
REBUILDING EFFORT
Economists polled by Reuters this week forecast Japan's biggest rebuilding effort since the post-World War Two period could cost the government as much as $250 billion, with the first emergency budget seen at around $62 billion.
Noda, who earlier rejected calls for a special relief tax, on Friday dismissed suggestions that Japan could use some of its $1 trillion in foreign reserves for funding, underscoring that fiscal savings and borrowing would have to do the job.
"The foreign exchange account is to be used for currency intervention aimed at stabilizing the foreign exchange markets and for management of foreign currencies for this purpose," he told parliament.
"I know the quake reconstruction will require a lot of money but we basically cannot pay for it through the foreign exchange account."
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