The new finance minister’s statement Wednesday that discussion to raise the consumption tax will only begin next fall has sparked speculation that he will not carry out the last administration’s long-term plans to cut the debt and that it’s a ploy for his party to fare well in next summer’s Upper House election.
Former Finance Minister Sadakazu Tanigaki and former Financial Services Minister Kaoru Yosano both backed raising the consumption tax to cover the nation’s mounting social welfare costs. But, now, Koji Omi, backing Prime Minister Shinzo Abe’s position, is saying that promoting economic growth and cutting expenditures is a better way to get rid of the nation’s mountainous debt.
“The (Junichiro) Koizumi Cabinet carried out a thorough cut in expenditures in the central and local governments,” Omi told The Japan Times. “As these (cuts) continue, we must look at how the 2006 budget account closes and the social welfare situation at that point, before we begin a concrete, full-scale discussion (of tax increases) in autumn of next year.”
Abe said in a recent speech that the government must first see the effects of one year of health-care reforms in July, before considering a consumption tax hike.
“The economy is now taking off. We want to go with this flow while easing some regulations,” Omi said, adding that he wants to create “a healthy cycle, which, by giving incentives and reducing investment tax in such fields as research and development, creates new businesses that in turn create new products and jobs, and tax revenue.”
Omi also said he is prepared to listen to requests from the business community to re-examine such things as the corporate tax system and its system of depreciation, which firms claim are disadvantageous compared with other Asian economies.
He claimed that while the country’s snowballing debt, now at 775 trillion yen and 150 percent of the gross domestic product, is the worst in the world, the amount of individual contributions — taxes, health insurance and pension — is the lowest in the world, at 37 percent, and he wants people “to know this and cooperate.”
Economists who fear the country is in danger of going bankrupt praised Omi’s predecessor, Tanigaki, for stating clearly that the 5 percent consumption tax should be hiked to at least 10 percent if Japan wants to cut its massive debt.
They have also pointed out that the Koizumi government, in its 2005 economic policy guideline, said an outline of tax revisions would be completed by the end of fiscal 2006. Traditionally, new governments have followed prior administrations’ guidelines.
In addition, a delay in raising the consumption tax could affect other Koizumi-era plans.
For example, state contributions to the basic national pension program will be raised to 50 percent in 2009 from 30 percent. And the money for this, under Tanigaki, was to come from additional revenue from a higher consumption tax.
It was also expected to cover the 2.2 trillion yen to 5.1 trillion yen shortfall the government is expected to have in trying to reach a budget surplus in 2011, another Koizumi plan in the 2006 economic policy guideline.
During the group interview, Omi’s plans drew fire from frustrated reporters.
“Don’t you think it would be much better for the Japanese people to discuss the tax issue now and make it a point of debate in next year’s election?” one reporter asked, telling Omi that people saw the delay as a tactic to help the Liberal Democratic Party fare well in the House of Councilors election next year.
Omi denied that it was political maneuvering, claiming the government was simply taking a wait-and-see approach.
Omi, from Gunma Prefecture, in 1956 joined the then Ministry of Trade and Industry after graduating from Hitotsubashi University. He ran and won a House of Representatives seat as an independent in 1983, and in 1997 became chief of the then Economic Planning Agency.
In 2001 under Koizumi, he was put in charge of issues pertaining to Okinawa and the Russia-held islands off Hokkaido, and science and technology policy.