TOKYO, Dec 14 Reuters The tax reform panel of Japan39;s ruling Liberal Democratic Party has agreed on income tax breaks aimed at offsetting the pain of price hikes on households to help change decades of deflationary mindset, a document reviewed by Reuters showed on Thursday.

The LDP, and its small coalition ally Komeito, decided to forego tax hikes for increased defence spending next fiscal year, as Prime Minister Fumio Kishida prioritised the tax cuts as a symbol of government efforts to push a progrowth agenda.

Kishida39;s cabinet is mired in a downward spiral in public support over rising cost of living, declining real wages and a scandal over fundraising proceeds that is leading to a shakeup of top ministers.

The document showed the panel decided to cap annual household income for those who are eligible for the income tax cuts amid concerns about a gap between haves and have nots.

It shelved a decision to increase taxes to fund a planned boost to defence spending for the next fiscal year.

The tax panel could not be immediately reached for comment.

For households, the LDP tax panel will forego lowering a cap on mortgage borrowing planned for next year.

To encourage a virtuous cycle of growth led by privatesector demand, the tax policymakers are ramping up tax breaks on companies that raise wages.

Even lossmaking small firms can be allowed to carry over preferential tax treatment for up to five years.

The tax panel has also agreed to a newlyestablish tax…