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Feisty Tokyo governor gets bank tax backing

TOKYO: Tokyo Governor Shintaro Ishihara won more support on Monday for his controversial plan to impose local taxes on big banks to help get the city out of the red, and the prime minister said he could not stand in the way.

Some analysts said the central government could still pressure the feisty governor to back down, while others speculated over a possible compromise that would broaden the local tax base without singling out banks.

Either way, Ishihara a right-leaning former ruling party lawmaker turned independent and known for his outspoken ways looked set to win in the popularity sweepstakes with his attack on the big banks the Japanese public loves to hate.

"It's brilliant, it's great politics, its great populism," said one Western financial analyst.

"It ain't going to solve the problem (of debt-ridden local finances) but as political theatre, it's up there with the best."

OBUCHI SAYS TO MULL IMPACT

Prime Minister Keizo Obuchi said on Monday that the central government could not stop Tokyo from introducing the tax a three percent levy on big banks' gross business profits for five years which would generate some 110 billion a year for the city.

Acknowledging that procedurally Tokyo did not need to consult the central government to impose the tax, Obuchi told parliament: "The central government will study what problems could arise, extending all the way to small and medium-sized enterprises, from imposing this tax on only one group of financial institutions."

Ishihara has said he will present the tax proposal to the Tokyo assembly when it convenes on February 23.

On Monday, the plan got support from the local branches of two of the parties in Obuchi's ruling coalition, his own Liberal Democratic Party (LDP) and the Buddhist-backed New Komeito which together have more than half the local assembly seats.

An LDP spokesman declined comment but New Komeito Tokyo assembly member Hideo Nakayama told Reuters: "Of course, there is the budget deficit issue, but our backing for the proposed bill is also an attempt to strengthen the role of the municipalities in an age of decentralisation of government."

Asked if support from New Komeito and the LDP would enable swift passage of the measure, Nakayama said: "Yes, we've agreed, but we want to see active debate on the content."

POPULAR MOVE HIGHLIGHTS LOCAL FINANCE QUAGMIRE

Popular applause is loud for the bank tax, which analysts say would damage earnings and share prices if it takes effect not least because the banks last March got an infusion of 7.46 trillion yen ($68.96 billion) in public funds to help clean up bad loans and put their houses in order.

Authorities said the infusion was needed to counter the risk of a financial system crisis, but many voters saw the move as a bailout for arrogant bank managers who had done a poor job.

"Taxpayer support is astoundingly high," said Shigeru Okazaki, a political analyst at Warburg Dillon Read.

Bank-bashing aside, Ishihara's move has cast into sharp focus the red ink which has swamped Japan's local authorities even as central government debt piled up to record levels.

Tokyo and other local municipalities have seen their debts rise during a decade of recession of choked-off tax revenues while deficit spending ballooned in an effort to kick-start growth.

"What this does is highlight the horrendous black hole in a growing list of black holes," the Western analyst said.

Ishihara said on Sunday he would not back down but added that the move against the banks was a "first shot".

Some analysts said the central government could still strong-arm Tokyo because currently about 7.6 percent of metropolitan revenues come from national government coffers.

One way out could be to implement a similar tax on all corporations-currently taxed on profits after write-offs-while lowering the proposed rate. That proposal has been debated in the government's own advisory panel on tax reform.

Government tax panel chief Hiroshi Kato said on Sunday that he favoured all local governments imposing a tax based on business size, not net profits, but that Ishihara was wrong to single out banks.-Reuters