The Democratic Party of Japan and the two main opposition parties — the Liberal Democratic Party and Komeito — on Tuesday agreed on the length of the period to redeem bonds issued to pay for reconstruction from the March 11 earthquake and tsunami and the Fukushima nuclear power plant accidents. Under the agreement, the bonds will be redeemed over 25 years. This means that the burden from tax increases to repay the bonds will be drawn out over 25 years.
As a result of the agreement, the LDP and Komeito will cooperate with the DPJ in Diet deliberations on the third supplementary budget for fiscal 2011 to finance the reconstruction and related bills. Reconstruction in areas hit by the triple disasters is not making rapid progress. With the rigors of winter approaching, all political parties should accelerate necessary Diet deliberations.
At first Prime Minister Yoshihiko Noda planned to redeem the bonds in 10 years so that the financial burden for the reconstruction would not be passed on to future generations. Later, the DPJ expressed its readiness to prolong the redemption period to 15 years in response to Komeito’s call for a 15-to-20-year period.
The LDP at first proposed that the bonds be redeemed over 60 years. Later, LDP President Sadakazu Tanigaki mentioned the possibility that the party might be ready to accept redemption over 30 years. Eventually, the DPJ, the LDP and Komeito agreed on a 25-year redemption period. This represents a compromise that takes into account both the need to quickly enact budget and related bills and the fact that future generations will benefit from the infrastructure built through the reconstruction efforts.
If the 25-year redemption period is adopted, the yearly increase in income tax will be about 60 percent less than it would have been with a 10-year redemption period.
In the case of a married couple with a child less than 16 years old, the yearly income tax increase will be reduced from ¥12,000 to ¥4,800 if the family’s annual income is ¥7 million. Although the yearly burden is reduced, people will feel that the arrangement is like a semi-permanent tax increase.
In the near future, the consumption tax rate will be raised, and the government should seriously consider the ill effects from the tax increases, which will sap people and enterprises’ economic energy.