The Cabinet officially approved a draft proposal Friday to raise the consumption tax to 10 percent by October 2015 to cover swelling social security costs and restore Japan’s fiscal health.
The government is expected to submit a bill to the Diet for deliberation before March 31, the final day of fiscal 2011.
According to the proposal, the current 5 percent consumption tax would first be raised to 8 percent in April 2014, and then hiked to 10 percent in October 2015. All revenue from the tax would be used to finance the social security system, including pensions, medical treatment, nursing care and child rearing.
The proposal also takes into account the stagnant economy, stating the government it will “comprehensively consider” various factors, including nominal and real gross domestic product and price trends, before a tax hike is implemented. Any legislation would include a clause allowing the government to suspend the tax increase depending on the state of the economy.
But the prospects of the legislation being enacted remain highly uncertain.
Opposition parties have already rejected Prime Minister Yoshihiko Noda’s offer to start talks on the contentious tax hike, and even his ruling Democratic Party of Japan is divided over the issue.
The Liberal Democratic Party, the largest opposition party, is refusing to accept Noda’s offer to start discussions even though it is in favor of a tax hike in principle.
The party has instead chosen to use the sensitive issue as a way to bring down Noda’s administration, and is calling on the prime minister to dissolve the Lower House and hold a snap election to seek the electorate’s judgement on the tax hike before legislation is passed.
But Noda remains determined to force through the tax rise, and reaffirmed he will call on opposition parties and DPJ lawmakers opposed to the plan to “make joint efforts” to submit the bill to the Diet by the end of March.
“This is a draft. It would be meaningless if it remains just that,” Noda said. “This issue is something no government can avoid and I plan to earnestly ask the opposition parties to join the talks and form a consensus together.
“I want to confirm that this is not just about social security and tax reform. It is a major (initiative) that includes political and administrative reform as well as economic recovery.”