Paper: Helping business helps nation

The Yomiuri Shimbun

The Annual Report on the Japanese Economy and Public Finances for fiscal 2010, submitted to the Cabinet on Friday, urges lower corporate taxes and a higher consumption tax rate.

The white paper, submitted by state minister in charge of economic and fiscal policy Satoshi Arai at a Cabinet meeting, argues that lowering the effective corporate tax rate is necessary to help companies grow and enable the nation to reverse lingering deflationary trends.

The government needs to increase household incomes by enhancing companies' profitability, the paper says. It also strongly urges that the consumption tax rate be raised to aid reconstruction of the government's finances.

In reference to the structural problems the national economy faces, the report said Japan will be tested over how to overcome deflation and the deterioration of government finances.

With regard to deflation, which has slowed the nation's economic recovery, the white paper says, "Currently among major industrialized countries, only Japan is in a clear deflationary state."

It also says that deflation is worse now than it was around 2000, because the prices of not only goods but also services are falling, and at a much faster rate. In 2009 alone, the ratio of all goods and services whose prices fell jumped from about 30 percent to around 65 percent.

The report also includes analysis that indicates deflation stemming from short demand has pushed up the unemployment rate by about two percentage points.

To halt the deflationary trend, the white paper calls for companies to pursue business in Asian countries experiencing economic growth that require railways and other infrastructure.

Concerning the effective corporate tax rate--currently 40.69 percent, the highest among industrialized countries--the white paper includes analysis of taxation trends in member countries of the Organization for Economic Cooperation and Development.

The analysis shows that the ratio of corporate tax revenue to gross domestic product was the highest among countries where the corporate tax rate is between 20 percent and 30 percent.

The white paper argues that lowering the nation's corporate tax rate will help companies expand, resulting in more tax revenue.

"Companies need money, which can then be distributed to households. It is necessary to improve the foundations on which companies can build their profits," the white paper says.

The report advocates changing the taxation system so that it centers on the consumption tax, which is relatively unaffected by changes in economic conditions.

In its concluding section, the white paper says, "A nation where companies are comfortable is also good for households."