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Economy

At Davos, Abe vows to cut red tape, overhaul corporate taxes

DAVOS, Switzerland -- Japanese Prime Minister Shinzo Abe told the world on Jan. 22 he will bore through the country's regulatory bedrock to unlock growth.

     "Over the next two years, no vested interests will remain immune from my drill," Abe said in a special address, the first for a Japanese prime minister, at the World Economic Forum's annual meeting here in Switzerland.

 

    His government will pursue further reforms to corporate taxation this year, Abe said, declaring he would make the tax code "internationally competitive."

     To encourage companies to spend cash on fixed capital, innovation and higher pay for workers, his government will use tax incentives "in a way completely different from before," the prime minister said. Going into the conference, he had already suggested that tax breaks would not necessarily need to be budget-neutral in the short term.

     Abe also talked up impending changes at the Government Pension Investment Fund, which manages some 120 trillion yen ($1.14 trillion) in assets. He said the fund will undergo "forward-looking reforms," including a review of its portfolio.

     In a meeting with international media, Abe also spoke boldly about reform, saying he would smash through special interests to make it easier for foreign companies to do business in Japan.

     Overseas investors have propelled Japanese equity prices higher since Abe's return to the prime minister's office, buying a net 15 trillion yen worth of shares last year. They are paying close attention to how his government goes about promoting growth.

     "By essentially making an international commitment, Abe is giving foreign investors the impression that the economy is once again his government's top priority," said Kyoya Okazawa at BNP Paribas Securities in Japan.

      He will need to act more decisively in this respect than in his first year back in charge. Regulatory reform in health care, farming, employment and other areas is on the table for a follow-up growth strategy due out in June. But so-called bedrock regulations have proved perennially resistant to change on a nationwide basis.

      In agriculture, for instance, small- and midscale farmers fight tooth and nail against changes that may make the sector more competitive globally, such as allowing corporations to own farmland and spinning off agricultural cooperatives' financing and insurance businesses. When it comes to making the job market more fluid, the labor ministry warned last year that loosening regulations could violate the basic human rights enshrined in the constitution.

     Abe envisions creating special zones to chip away at this regulatory monolith. His government will choose the first round of these beachheads for reform in March. There are expected to be two or three geographic areas and one or two virtual zones, such as agriculture, that are not limited to a particular place.

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