Public works spending will have a greater economic stimulus effect than income tax cuts, Eisuke Sakakibara, vice finance minister for international affairs, said Wednesday.
In a speech in Tokyo, Sakakibara said public works spending -- expected to top 6 trillion yen in the government's upcoming pump-priming package -- would be more effective than temporary cuts in income and resident taxes. "Under current economic conditions, where investment is slack despite low interest rates, public works spending can be expected to expand the economy by at least 2 percent," he said.
In contrast, the additional 2 trillion yen in temporary tax cuts planned for later this year would boost economic growth by only 0.4 percent to 0.5 percent, he added. Even permanent tax cuts could not be expected to greatly boost the economy since the public is already anticipating tax hikes in five to 10 years' time, he said.
Sakakibara's comments come in the wake of recent remarks by top U.S. economic officials who urged Japan to implement large-scale tax cuts -- instead of traditional pump-priming steps centered on public works spending -- to shore up the sluggish Japanese economy.
Sakakibara predicted that the impact of the stimulus plan, due out Friday, will begin to appear around July.