Japan tax debate set to move ahead after minister's resignation

Prime Minister Noboru Takeshita seems within reach of his cherished domestic goal, tax reform. But he has had to sacrifice his deputy premier and finance minister, Kiichi Miyazawa, to the still unfolding Recruit-Cosmos insider-trading scandal. Mr. Miyazawa resigned Friday and his post has been taken on for the time being by Mr. Takeshita himself until a general Cabinet shuffle at the end of the year. Two minor opposition parties have agreed to resume discussions on tax reform in the upper house, where the Recruit-Cosmos affair had all but paralyzed proceedings for the past several weeks. The upper house will hold a public hearing on the six tax-reform bills Dec. 16 and will probably pass them by Dec. 26, the final day of the current session.

Tax reform and the Recruit-Cosmos affair are two separate issues. The opposition tied them together to hold up, and, if possible, kill tax reform, which three previous Cabinets were unable to pass. Under the plan, personal income taxes would be reduced; in their place a new 3 percent consumption tax (similar to Europe's value-added tax) will be imposed.

As deputy premier and finance minister, the cerebral internationalist Miyazawa was charged with shepherding tax reform through the two houses of the Diet (parliament). Miyazawa has the reputation of loving ideas but disdaining the you-scratch-my-back-I-scratch-yours that is the day-to-day stuff of politics.

Although the ruling Liberal Democratic Party has an absolute majority in the Diet (parliament), in consensus-minded Japan it is loath to railroad legislation through without bringing at least one of the four opposition parties aboard. While Miyazawa gave his formal explanations in the Diet, Takeshita, through skillful politicking mostly by telephone, sources say, managed to get not one but two opposition parties to go along - the Democratic Socialists and the Komeito or Clean Government Party. The Communists and the main opposition party, the Socialists, remained adamantly opposed.

Then, last summer, the Recruit-Cosmos scandal broke. For reasons that prosecutors are still trying to unravel, Recruit-Cosmos, a real-estate company, offered shares to a select list of politicians, businessmen, journalists, and other influential people before the shares went public. Most of these people sold their shares soon after they were listed on the over-the-counter market, earning huge profits.

Insider trading is not illegal in Japan, but bribery is. Prosecutors are now trying to determine which of the individuals who obtained Recruit-Cosmos shares are criminally chargeable. Almost all Japan's leading politicians, from Takeshita on down, bought and then sold Recruit-Cosmos shares, but none did so in their own names - except Miyazawa.

Among politicians it has long been the practice for secretaries or relatives to do the kind of political fund raising that borders on or oversteps the bounds of legality. When the Recruit-Cosmos scandal surfaced, all the politicians involved publicly apologized for ``failing to sufficiently control'' their secretaries.

Miyazawa alone insisted that even his secretary had merely been letting an acquaintance use Miyazawa's name. As damaging new evidence came to light, Miyazawa was forced to change his story time after time.

The opposition had a field day. Finally, to end the agony, the Liberal-Democrats' Diet negotiating committee reached a deal with the Democratic Socialists and the Komeito that if Miyazawa quit, debate on tax reform could be resumed. Miyazawa did resign, and as the week begins, tax reform is set to move forward again.

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