Japan will cut the tax rate on corporate income by 3.29 percentage points over two years to encourage companies to raise wages and boost investment, at a cost of about 400 billion yen ($3.3 billion) in revenue over the period.

Company income tax will drop by 2.51 percentage points in the fiscal year starting April and a further 0.78 percentage points the next year, according to the ruling coalition's tax plan, released today in Tokyo. The government also plans tax-free investment accounts for children and an expansion of tax-free donations to relatives.

The change follows a stimulus package announced last week that boosted subsidies for the poor and support for small businesses. Abe is turning to corporate tax cuts to encourage economic activity after an increase in Japan's sales levy cut household spending power and pushed the nation into recession.

"We need companies to change their behavior and effectively use their cash, not just save it," said Takeshi Noda, the ruling Liberal Democratic Party's tax panel chief. "We enhanced tax incentives to promote wage increases."

The LDP and its Komeito coalition partner control parliament and plan to enact the changes before the start of the next fiscal year that begins on April 1.

Japan plans to cut the corporate tax rate to below 30 percent over about five years as part of efforts to stimulate the economy and push companies to spend record amounts of cash. The current rate of about 35 percent is the second highest among Group of Seven nations, according to the Ministry of Finance.

Record Cash

Companies haven't deployed a record 233 trillion yen in cash holdings into investment or pay, with business spending dropping in the six months through September and wages adjusted for inflation dropping for 17 straight months through November.

"The revisions will be effective in giving companies incentives to raise wages and boost investment, especially for those making profits," said Kazuhiro Yoshii, managing director of the legal and tax research unit at the Daiwa Institute of Research. "It will have limited effects on the government's finances as the expansion in the tax base is able to make up for the cut in tax rates to some extent."

To generate revenue to help replace that lost from the tax cuts, the government will reduce the amount of company income that can be written off to cover previous losses. This will be cut to 50 percent by April 2017 from the current 80 percent, with an extension of the period that losses can be carried forward to 10 years from the current nine.

Tax Rises

The rate for some local government levies will also be raised. Unlike corporate income tax, these are applied to all companies, not just those making a profit. Seventy percent of Japanese companies didn't make profits in fiscal 2012, according to Ministry of Finance data.

Taxes on some dividend payments will also be increased.

The government also intends to expand the Nippon Individual Saving Account program, or NISA, which started this year. It calls for increasing the annual NISA investment cap to 1.2 million yen and creating a junior NISA program for people younger than 20.

NISA currently allows each person to buy as much as 5 million yen of stocks and investment trusts without paying taxes on dividends or profits, subject to an annual cap on purchases of 1 million yen. The junior NISA program would have an annual investment limit of 800,000 yen. There were 7.3 million accounts at the end of June, with 1.6 trillion yen invested.

To promote the shift of financial assets held by the elderly to their descendants, the tax-free threshold for cash donations to relatives will be raised to as much as 30 million yen from October 2016, from the current 10 million yen. The money must be used to purchase real-estate to qualify, and the threshold will be reduced from October 2017.

To contact the reporters on this story: Masaaki Iwamoto in Tokyo at This email address is being protected from spambots. You need JavaScript enabled to view it.; Kyoko Shimodoi in Tokyo at This email address is being protected from spambots. You need JavaScript enabled to view it.

To contact the editors responsible for this story: Brett Miller at This email address is being protected from spambots. You need JavaScript enabled to view it. James Mayger

LONDON The Russian economy has officially got a shrinkage problem.

New data from the Ministry of Economic Development shows the countrys gross domestic product shrank in November, marking the first time the economy has contracted in the last five years.

The contraction was widely expected and is forecast to get much worse as Russia suffers from a sharp fall in oil prices and a squeeze from Western sanctions.

I think its fairly obvious that this is only the beginning of Russias GDP contraction, and well see a much sharper downturn in 2015 as consumption, investment and government expenditure all collapse, said Craig Botham, an emerging markets economist at Schroders.

GDP declined by 0.5% in November compared to the same period last year.

Earlier this month, Russias finance minister Anton Siluanov reportedly warned GDP could contract by 4% in 2015. Former finance minister Alexei Kudrin issued a similar warning.

The ruble extended its slide Monday by another 6%. The currency has plunged by over 40% since the start of the year.

The benchmark RTS stock market index dipped by about 4%. The Micex index edged up by 1%.

Related: Bruce Willis favorite Russian bank collapses

But the economic dip in November looks worse on paper than in real life, warned senior economist Dmitry Dolgin from Alfa Bank in Moscow.

November 2014 had two work days less than November 2013, so the year-over-year figures underestimate the actual [economic] activity, he told CNNMoney.

Dolgin forecasts December GDP data will actually get a boost since consumers felt compelled to spend more on goods and stock up this month. As the value of their currency plunged, imports including the iPhone 6, for example, became far more expensive.

But brace yourself for a true economic shock in 2015, when GDP could decline by double digits in the first quarter of the year, said Dolgin.

How did this Russian crisis start?: Russian President Vladimir Putin has faced two main problems this year that are wreaking havoc on his countrys economy:

1. Sanctions: The international community has imposed harsh sanctions over Russias decision to support separatist rebels in Ukraine. This has slammed Russias economy and encouraged investors to pull their money and run.

2. Oil prices: Oil prices plunged by about 50% over the course of six months and even though prices are stabilizing, the drop has hurt Russia, which depends on a healthy oil industry. Roughly half of Russian government revenue comes from oil and gas exports.

These two factors have caused a variety of knock-on effects, including a sharp fall in the ruble and spiking inflation.

By Darya Korsunskaya and Vladimir Abramov

MOSCOW, Dec 26 (Reuters) - Slumping oil prices have put Russias economy on course for a sharp recession and double-digit inflation next year, government ministers said on Friday, as authorities scaled up a bailout for the first bank to succumb to this months rouble crisis.

The economy is slowing sharply as Western sanctions over the Ukraine crisis deter foreign investment and spur capital flight, and as a slump in oil prices severely reduces Russias export revenues and pummels the rouble.

By Lee H. Hamilton

Recent economic news has been broadly reassuring. Retail sales are strong, November saw the best job gains in three years, the federal deficit is shrinking, the stock market is robust, and the Fed is expressing enough faith in the economy that an interest rate bump next year is considered a certainty.

Yet the public remains unconvinced. This is partly because perceptions havent caught up to reality. For many middle- and lower-class families, economic circumstances have not changed very much. Average wages, adjusted for inflation, have not risen in keeping with the good economic news. The median net worth of households is actually a bit less than it was in 2010, just after the official end of the recession and the gap between the wealthy and the rest of us is wider than ever.

Strong numbers do, however, offer one unambiguous piece of good news: The pressure on policy makers to focus on near-term or immediate problems has eased, which means they can now focus on the fundamental question of economic growth. Thats where their attention should turn.

A strong economy that is growing for everyone, not just the people at the top, offers many benefits. The quality of peoples lives improves. Political problems become more manageable. More people have greater economic opportunity. Theres more social mobility and more tolerance of diversity.

Because the economy is always at or near the top of voters concerns, the temptation for the policy-maker is to support another tax cut or the next move to stimulate the economy in the short term. Now is the time for policy-makers to resist this and try to understand the large forces technology, automation, globalization that drive our economy. As Princeton economist Alan Blinder, political strategist Al From and others have pointed out, the key is to concentrate on creating the environment in the country for sustained, non-inflationary economic growth.

To begin with, we have a chance to get our fiscal house in order and pursue long-term deficit reduction. This is a crucial early step for government to take in creating a sound environment for economic growth.

This means modernizing entitlement spending and shaping a tax-reform package that focuses on investments to boost productivity and help the economy to grow for everyone, through research and development, job training, upgrading skills as well as technology, and reducing outsourcing.

At the same time, it means eliminating public subsidies to individual enterprises. That money can be spent on boosting the economic skills of ordinary Americans through education and training. Policies aimed at strengthening our education system from pre-kindergarten to graduate school, and at promoting lifelong learning and a workforce capable of upgrading its skills to meet changing needs, will have a far more salutary effect on our economy than singling out politically connected enterprises for tax and other benefits.

There are other steps government policy-makers can take to improve broad economic growth. We need to expand trade through open markets and simplify the regulatory structure so that it protects Americans without burdening companies beyond reason. And we must address our nations deferred infrastructure needs, which hinder the smooth functioning of every business that relies on transporting its goods.

The same applies to reforming government itself. A government that does not work well that wastes money, fails its regulatory responsibilities, and cannot make timely decisions undermines economic growth. You can see this, for instance, in our current inability to pass comprehensive immigration reform: We cannot increase economic growth without the people our labor force needs, from mathematicians and engineers to migrant farm workers.

Finally, policy-makers need to remember that economic growth means providing a ladder out of poverty for the truly needy. Providing opportunity for low-income Americans through the Earned Income Tax Credit and programs to upgrade their skills is vital. No one who works full time should be poor in this country.

Free, competitive markets are the best way to deliver goods and services to Americans. Government must not get in the way of that system. Nor should it stand idle. The right response by government to our economic challenges is not to focus on the immediate economic problems of the day, but to invest in economic growth for all.

Lee Hamilton is Director of the Center on Congress at Indiana University. He was a member of the US House of Representatives for 34 years.