1,000 pounds pa tax gift for Japanese

TOKYO - The Japanese government yesterday announced a package worth pounds 92bn in another attempt to lift the country out of a two- year recession, writes Terry McCarthy. The centre-piece of the package was an income-tax cut of pounds 35bn, which caused so much controversy when first announced six days ago that it nearly caused the government to fall.

The Prime Minister, Morihiro Hosokawa, said he expected 'substantial effects' from the tax cuts, which will give an average family an extra pounds 1,000 'to meet expectations both at home and abroad'. Earlier, a compromise over the tax issue was reached when the government, under pressure from the Socialist Party, agreed to defer for a year the unpopular decision on raising sales tax to balance the income-tax cut.

Japan has been pressed by its trading partners to boost its economy so that it will buy more imports to offset its huge trade surplus.

Of most concern to Tokyo has been mounting criticism from the US and one of the main impetuses behind the timing of yesterday's package is a planned visit by Mr Hosokawa to Washington this weekend.

It has become customary for the government to agree on a big spending package or similar conciliatory gesture in advance of each summit meeting with the US President. And with US Congressmen again threatening trade sanctions, the need to appear conciliatory is paramount: on Monday the Finance Ministry in Tokyo said that the surplus for the last calendar year had risen to a record dollars 141bn ( pounds 94bn).

In addition to the tax cuts, the government will increase spending on public works and further subsidise loans to small businesses and loans for public housing. Earlier in the day Mr Hosokawa apologised for the precipitate way in which he first announced the tax-reform plan last week; in Japan, decisions are expected to be made only when a consensus has been achieved in advance: the idea of a government leader steering government policy on his own amounts to dangerous heresy.

Under the tax-cut scheme, a family of four with an average income of pounds 48,500 will see its annual income and local- tax bill of pounds 4,850 reduced by pounds 970.