Mr. Abe on Tax Policy

Mr.Abe proposes cuts in corporate taxes to promote capital investment and considers expanding a preferential treatment for the investment in venture-capital corporations. Here is the excerpt:

The Yomiuri Shinbun
Sep. 24, 2006

Liberal Democratic Party President Shinzo Abe will likely propose 600 billion yen cuts in corporate taxes for fiscal 2007 to promote capital investment in information technology-related equipment, a source close to him said Saturday. As a concrete measure, the upper limit for depreciation of equipment, an amount which companies can deduct as losses from its profits when they purchase equipment or machines, will be raised from the current 95 percent to 100 percent of the purchase price. As the taxable profit will be compressed from now, the tax burden of companies will be reduced, said the source.

Abe is also considering expanding the so-called angel taxation system, a preferential treatment for individuals who invest in venture-capital corporations, the source explained. During his campaign for the LDP presidential election, Abe said that he would like to improve industrial productivity through technological innovation to aim at attaining real economic growth of around 3 percent. The envisaged corporate tax cuts will be one of the main pillars of his policy to back up technological innovation.

....According to a report compiled by the Economy, Trade and Industry Ministry in 2005, the amount of domestic investment in IT-related fields against gross domestic product is 2 percent, lower than 3 percent in the United States and 2.8 percent on a global average. In most major countries, including Britain and the United States, the upper limit for depreciation of equipment is 100 percent. Business leaders have long been asking the government to bridge the international divide.

Concerning the measure to assist venture capital, the scope of the angel taxation system will be expanded. Under the current system, individual investors can deduct an amount of investment made in venture-capital organizations from profits obtained through stock investments. The amount of investment into venture firms will also be deducted from interest on savings and other income from financial products, according to Abe's plan.

OK, Mr. Abe wants to stimulate the aggregate demand of the economy: A cut in corporate tax promotes capital investment and so does the demand for the related equipments. The equipment maker also promotes investment to enlarge its business. This "multiple effect" at last increases the effective demand of the economy as a whole.

Expanding a preferential treatment for investor in venture-capital corporations is also likely to boost the economy. New business generally stimulates the purchase for the goods and services. I think Mr. Abe is right. In Japan the economy is still stagnant because of insufficient demand for the goods and services sold in the market, although current news are reporting its recover.

I hope for the sound effect of Abe's tax cut and the promotion of new business.