By Yoshifumi Takemoto and Leika Kihara
TOKYO (Reuters) -Japanese Prime Minister Fumio Kishida has told his ruling party to look into a possible income tax cut as part of measures to cushion the economic blow from rising living costs, a senior party official said on Friday.
Any income tax cut would be temporary and could be coupled with payouts to low-income households, Liberal Democratic Party (LDP) policy chief Koichi Hagiuda told reporters. He added that the ruling party will start discussing the size of the package.
The remarks came after public broadcaster NHK reported on Thursday that Kishida is considering a temporary income tax cut as part of the stimulus package now under consideration.
LDP’s tax panel chief Yoichi Miyazasa told reporters that it would be “common sense” to limit the duration of the possible income tax cut to one year.
Any such move could add to Japan’s already ballooning public debt and run counter to the International Monetary Fund’s calls for countries to scale back crisis-mode big fiscal spending.
Moreover, some analysts doubt whether a tax cut would boost growth. The government said in its monthly report in September that the economy is continuing to recover “moderately”, though a fresh spike in oil prices and a persistently weak yen could keep inflation elevated.
“It appears to be politically motivated,” Takuya Hoshino, senior economist at Dai-ichi Life Research Institute, said of an income tax cut.
“If past examples are any guide, no matter how much the government tries to shore up household income, it would simply go to savings rather spending.”
The prime minister had earlier announced plans to compile an economic stimulus package that would likely include an extension of subsidies to curb gasoline and utility bills.
Since then, the administration has faced pressure to increase spending from lawmakers keen to appeal to voters.
Ruling party heavyweight Hiroshige Seko said on Friday the package needs be sized at more than 15 trillion yen ($100 billion).
Sources have told Reuters the government will finalize the package on Nov. 2, later than the previous planned timeframe of late October. It will then go to parliament for deliberation.
Kishida’s administration has seen its approval ratings slide as rising inflation hits households. A poll by the Asahi newspaper, conducted on Oct. 14-15, showed ratings slump to 29% from 37% in the previous survey in September, with 69% saying they did not hold high hopes over the stimulus package.
($1 = 149.9100 yen)
(Reporting by Yoshifumi Takemoto, Leika Kihara, Tetsushi Kajimoto and Kiyoshi Takenaka; Editing by Kim Coghill)