MITI and the Japanese miracle

Page 234

Beginning in 1951 the Ministry of Finance, in consultation with the Enterprises Bureau of MITI and the Industrial Rationalization Council, proceeded very slowly with annual revisions of the old Taxation Special Measures Law, which resulted by the end of the decade in the complete dismantling of the Shoup system. Among the ministry's actions were the exclusion of up to 50 percent of a firm's income earned from exports (this was raised to 80 percent by the tax revision of 1955), rapid depreciation of designated investments for industrial rationalization, exclusion of strategic machinery from import duties, deductions for royalties paid for foreign technology, and many others. A "deliberation council" controlled by the Ministry of Finance supervised and approved these annual revisions. In 1959 this council, renamed the Tax System Deliberation Council (Zeisei Chosa * Kai), became a permanent organ of the prime minister's office. It, and not the cabinet or the Diet (which normally only rubber-stamps its recommendations), makes annual revisions in the tax system in the light of changing needs and economic conditions. The minister of finance chooses the council's members, and its proceedings are not open to the public. After the creation of the LDP the council became the Finance Ministry's main tool for attempting to prevent the party from politicizing the tax system.

⁷¹

Among the more creative of the special tax measures invented during the 1950's were the "reserve funds" set up to assist developing industries. These came in two types,

hikiatekin

, which are normal, accepted reserves of the sort found in most nations' corporation tax laws, and

jumbikin

, which the Ministry of Finance describes candidly as "those reserves which may not be duly justified by generally accepted accounting principles."

⁷²

Both types of reserves can be excluded from taxable profits. The best-known of the hikiatekin is that used for lump-sum payments to employees when they retire. This reserve fund was authorized in 1952 following an incident in which an automobile repair facility run by the U.S. military at the Yokosuka naval base was closed down and all the employees fired without receiving any retirement allowance. In order to prevent a recurrence of the turmoil that surrounded the case, the government authorized re-

(footnote continued from previous page)

nates the necessity of actual government-to-producer payments and because it eliminates the necessity of annual review of the wisdom of such action, it is more desirable than a direct subsidy from the producers' point of view. It is also easier for the government to establish since the low visibility of the action will have less of a detrimental effect on consumers' perceived utility streams than would a more visible, direct subsidy."

Economic Foundations of Political Power

(New York: Free Press, 1973), p. 109.