The government and the Liberal Democratic Party-New Komeito ruling bloc on Wednesday officially authorized a midterm tax reform program to increase the 5 percent consumption tax in fiscal 2011 if the economy improves.
Prime Minister Taro Aso held a news conference to stress the need to bump up the sales levy to cover snowballing social security costs, but he did not specify how high the tax would be hiked.
“This tax increase is to secure stable pension, medical treatment and nursing systems,” Aso said. “It is aimed so we don’t leave (debts) for our children and grandchildren to pay.”
Social security costs are expected to shoot up dramatically starting in fiscal 2009, especially with the scheduled hike in the central government’s share of funding pensions to 50 percent from the current one-third. For the first two years, the government will rely on emergency measures like using surplus reserves in the “special account” to cover the spending increase.
“But these are just emergency revenues and are not a stable source of income,” Aso said. “To create a social security system that is free from concerns, the No. 1 task is to secure a stable source of revenue.”
The government until recently had considered boosting the tobacco tax but gave up in the face of strong protests from LDP lawmakers and the tobacco industry.
Aso refused to say how high the consumption tax will go.
“That is something the government and the ruling bloc will determine from this point forward,” Aso said.
Appearing on a TV talk show Sunday, economic and fiscal policy minister Kaoru Yosano stressed the necessity of raising the consumption tax to 10 percent by 2015. The Japan Business Federation (Nippon Keidanren) also recommended to the Aso Cabinet in October that the 5 percent tax be doubled by 2011.
Whether to clarify fiscal 2011 as when to raise the tax was a source of argument between the two ruling parties. New Komeito feared specifying the timing would hurt the two parties in the next general election, which must take place by next September at the latest, when the current Lower House term ends.
But after several days of discussions, New Komeito finally agreed to the consumption tax hike on condition that the tax reform program states the increase will only take place if the economy improves over the next three years.
“We agreed to the document and I think it turned out fine,” New Komeito leader Akihiro Ota said later Wednesday after the Cabinet approved the midterm tax program.
During his news conference, Aso also reiterated his intention not to dissolve the Lower House and call a snap election in the near future.
“I am well aware that some people are calling for an election, a coalition, a reshuffling of the political parties,” Aso said. “But we are in the middle of what is said to be an economic crisis that happens once in 100 years, and now is not the time to be saying such things.”
Aso said this is instead a time to take strong steps to address the economic crisis.
DPJ favors 2013
The Democratic Party of Japan adopted a tax reform action program Wednesday that advocates waiting at least until fiscal 2013 before studying whether to raise the consumption tax.
Whether to hike the 5 percent sales tax is “an issue to be studied in the future,” said the action program, which was adopted at a meeting of the DPJ’s tax system study panel.
If it becomes necessary for the largest opposition party to propose raising the tax in the future, it will specify a margin for the tax hike and ask the people in an election whether they would accept it, the program says.