Ishiba Gets Green Light for Stimulus With Tax Talks Pledge

(Bloomberg) -- Japanese Prime Minister Shigeru Ishiba struck a deal with a key opposition party over his economic stimulus package, by promising that discussion of the opposition’s tax cut proposals will be included among the measures, according to Makoto Hamaguchi, a senior official in Japan’s Democratic Party for the People.

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The package will state that annual tax reform discussions for the next fiscal year will include raising the ceiling for tax-free income from ¥1.03 million ($6,650), as proposed by the DPP, and will mention discussions on cutting gasoline taxes, an initiative also proposed by the DPP, Hamaguchi said.

The three parties also agreed to pass an extra budget needed to fund the stimulus package by the end of December. The package is expected to come out this week.

With the deal, Ishiba got the green light to finish the package in order to restore public support, after his ruling Liberal Democratic Party and its coalition partner lost their majority in last month’s national election. The DPP on the other hand got a foothold in pushing further with its policy proposals.

The minor opposition party won enough votes in October’s election to position itself as a power broker. Since then, it has pursued a strategy of debating policies with the ruling coalition on a case-by-case basis, rather than joining it outright.

The DPP’s top policy proposals are to raise the income tax-free ceiling from ¥1.03 million to ¥1.78 million and to carry out gasoline tax cuts. Raising the ceiling would help part-time workers put in more hours and spur consumption, as well as help businesses suffering from labor shortages, according to the DPP. The Finance Ministry says the change could cost up to ¥8 trillion in lost tax revenue.

“We got confirmation that the ceiling, which didn’t move for 30 years, will move,” Hamaguchi said. “That’s progress for us. We have no intention to waver on our goal to raise it to ¥1.78 million.”

As for annual tax reform discussions, the party also has asked the ruling coalition to consider halving the sales tax rate to 5% temporarily until real wages rise 2% and implementing tax cuts for companies that raise wages, for investment in growth-oriented areas like semiconductors and artificial intelligence, and for income from crypto assets.

The DPP aims to finish these tax reform discussions by the end of this year.

The economic stimulus package is expected to include additional cash handouts for low-income households, and reinstate subsidies for electricity and gas bills from January through March. It’s also set to outline how to generate and allocate more than ¥10 trillion of public support for Japan’s semiconductors and artificial intelligence sector.

(Updates with lawmaker’s comments)

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