The package of pump-priming measures decided Oct. 21 by the ruling Liberal Democratic Party does not seem capable of giving the sluggish economy a quick jolt because it lacks sufficient stimulus targeting personal consumption.Disappointment over the measures forced the benchmark Nikkei average of the Tokyo Stock Exchange to drop 84.42 points from Oct. 20 to 17,210.09, the second lowest closing figure of the year.Analysts also pointed to uncertainties over the proposals, though some expect the package to help prevent a further plunge of the economy. 'The contents of the package were roughly anticipated, but I still have a sense of disappointment," said Masaru Takagi, chief economist at Fuji Research Institute.One disappointment is the lack of income-tax cuts, said Takagi, who sees it as a necessary move to stir currently stagnant personal consumption. Speaking earlier this month at a hearing of the LDP's ad hoc council for economic measures, Takagi proposed the revival of limited-term tax cuts totaling 2 trillion yen a year, in combination with effective corporate tax cuts.Special income and residential tax breaks ended last year, keeping consumption down, as did the April consumption tax hike. He expressed a reserved appreciation for the LDP package, intended to reduce corporate tax and abolish taxes on securities transactions and land value. But, Takagi said, the wording is too vague to ensure that taxes such as corporate taxes will effectively be reduced.The package does not specify an effective rate of reduction in corporate tax. Taxation revisions are to be debated by special committees within both the LDP and the joint panel on taxes, formed by the LDP and the Social Democratic Party and New Party Sakigake, its two non-Cabinet allies.Kazutaka Kirishima, chief economist at Sumitomo Life Research Institute, also disapproved of the package, calling it "symptomatic therapy" that will not solve structural problems. The temporary plunge in personal consumption, caused by the repercussion of rush purchasing before the consumption tax rise, will gradually improve, Kirishima said. But consumer sentiment is gloomy because of the increasing burdens of such structural changes as medical insurance reform, he added.He said only two of the stimulus measures proposed have a chance at being implemented: the abolition or freezing of the land value tax, and the supplementary budget including public works projects for upgrading agricultural areas, known as the Uruguay Round-related expenditures.On the other hand, Kiyoshi Kassai, chief economist at SRIC Corp., a think tank affiliated with Sanwa Bank, expressed some approval of the package. "It is well-designed considering the lack of financial resources," Kassai said. While the package has only limited effect during fiscal 1997, it includes deregulation measures that can stimulate business sentiment and increase fixed investment for fiscal 1998, he said, referring especially to the telecommunications industry.
Pump-priming package leaves analysts disappointed
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