Democratic Party of Japan Secretary General Yukio Edano brushed off concerns that a sales tax hike could dampen consumer spending and defended DPJ President and Prime Minister Naoto Kan’s decision to invite debate on the unpopular levy just weeks before election day.
In an interview with The Japan Times on Wednesday, Edano asserted the 5 percent consumption tax has never had a substantial influence on demand.
“The effects of a tax hike have been demonstrated twice in the past — when the consumption tax was introduced at 3 percent, and when it was hiked to 5 percent,” Edano said.
“But in both cases, the repercussions it had on demand were minimal,” he said, stressing that deflation wouldn’t be accelerated by a tax hike.
In its campaign platform for the July 11 Upper House election, the ruling DPJ has proposed starting “nonpartisan negotiations on tax reforms,” while Kan has indicated he plans to raise the consumption tax, possibly to 10 percent, to cover snowballing social security costs.
But Kan’s call for tax reform has attracted a mixed response from both politicians and voters, quickly making the topic the focus of the election.
Edano said that rather than waiting for the poll, the time was ripe to begin serious debate on tax reform if the public is to be given enough time before the next general election to decide whether to accept a hike.
“Social security costs are supposed to be covered by the consumption tax, but we need an extra 5 (percentage points) or so to finance the cost without issuing more deficit-covering national bonds,” Edano said.
As a relief measure for those who live below the poverty line, Edano said his party was debating whether to implement tax refunds for low-income families, and said such plans will be further discussed after the Upper House election.
In a lecture in Saitama Prefecture Tuesday, Edano said the best solution to save low income earners from the burden of a tax hike would be to return the additional 5 points.
“In that case it would be equivalent to not paying” the extra amount, he said.
Regarding his party’s poll prospects, Edano said a forecast couldn’t be made until around a week before election day.
During a televised debate Tuesday, Kan said his party aims to win at least 54 Upper House seats. To gain a single-party majority, the DPJ will need to win at least 60 seats.
But Edano refrained from giving specific numbers.
“All I can say at this point is that we are neither optimistic nor pessimistic — my job is to get all 106 candidates elected,” he said.
The DPJ experienced a surge in approval ratings after Kan took over the government after Yukio Hatoyama quit as prime minister and Ichiro Ozawa exited as DPJ secretary general. But those figures have waned slightly since Kan broached the tax hike issue.