Tax hike policy due by March

by Hiroko Nakata

The government wants to hammer out by the end of March its stance on raising the 5 percent consumption tax, newly appointed National Policy Unit minister Satoshi Arai said Wednesday.

“We would like to find a direction (for discussions) by the end of March,” he said.

Official debate over increasing the sales tax is supposed to start at the end of this year and will include how the government would spend the increased revenue, how the regressive nature of the tax could be offset and when it would be cut, he said.

Prime Minister Naoto Kan suggested a few weeks ago the proposal by the Liberal Democratic Party, the main opposition force, to hike the levy to 10 percent could serve as “a reference” target, but the fiscal reform plan issued by the government in June did not include specifics.

Arai also said he will keep a close eye on the recent sharp decline in the stock market and the yen’s rise against the dollar.

“We’ll continue to watch cautiously the weak stocks, the higher yen and the overseas economies,” he said.

Arai said the economy still remains deflationary.

“We hope that deflation will end during fiscal 2011, if possible,” he said. “To do that, cooperation with the Bank of Japan would be very important.”

The growth plan issued June 18 stresses that “ending deflation is the most important task of macroeconomic management” and sets a goal to push the consumer price index to positive territory.

Arai said the government mentioned 3 percent economic growth in the plan, while the BOJ announced various monetary steps that supported the government policy.

“(In that sense), the BOJ has made tremendous efforts,” he said.

In December, the Democratic Party of Japan-led government drafted its basic growth strategy, aiming for average annual economic growth of 3 percent in nominal terms and a gross domestic product boost to ¥650 trillion by 2020.