Prime Minister Yoshihiko Noda made a policy speech before the Diet on Tuesday as it started a regular session for 2012. His main theme was a raise of the consumption tax and he called on opposition parties to take part in consultations on the matter with his ruling Democratic Party of Japan.
Mr. Noda stressed that the aim of the tax raise is to help keep Japan's social welfare system sustainable since social welfare spending will grow by ¥1 trillion every year. The government plans to raise the consumption tax from the current 5 percent to 8 percent in April 2014 and to 10 percent in October 2015. He made it clear that all the additional revenues from the tax raise, except the portion going to local governments, will be used for social welfare.
Mr. Noda has not made clear whether other tax revenues will also be used for social welfare. If the consumption tax comes to provide the only tax revenue for social welfare spending, the budget will lose a great deal of flexibility. He wants to avoid handing increasing debts to future generations. But the tax raise, given the current economic situation, could have a negative economic impact of deepening deflation and further delay Japan's financial reconstruction.