The government’s tax commission and the Liberal Democratic Party’s tax panel both voiced strong words of caution Friday over the idea of cutting the consumption tax to boost spending and thus shore up the now-moribund economy.
The LDP’s Research Commission on the Tax System panel will decide next Wednesday whether tax cuts such as those related to housing purchases could be incorporated into an emergency stimulus package, said Yuji Tsushima, subcommittee chief of the panel. The government’s economic package is to be announced Nov. 16.
“It is possible to argue for cutting the consumption tax, but we went through a lot of trouble to raise it,” Tsushima said, summarizing the day’s discussion at the panel.
The government has reportedly decided to discuss the consumption tax with the Liberal Party, an opposition party that has been calling for the tax to be rolled back from its current 5 percent to 3 percent. Such a cut may have a temporary positive effect on the economy but the rate must be raised at some point in the future, some members pointed out.
Members of also criticized the government for speaking on tax-related issues before consulting the panel, according to participants of the day’s session. Members said that when the ruling party dares to push another hike, it will be subjected to harsh criticism both from the public and the media.
Hiroshi Kato, head of the governmental Tax Commission, said on Friday that consumption the tax rate is “out of the question.”
Kato, also president of Chiba University of Commerce, said the nation’s future tax system must shift weight from direct taxes to indirect ones and that the consumption tax is the pillar of the latter.
To stay in that direction, the tax committee, an advisory panel to Prime Minister Keizo Obuchi, should oppose a consumption tax cut, Kato told reporters after the panel closed the day’s discussion at the Finance Ministry.
His comments came in response to the idea of a tax reduction that has been called for by the Liberal Party and may be considered by the ruling Liberal Democratic Party in a bid to woo the opposition. The Liberal Party has been insisting the consumption tax rate be lowered back to 3 percent from the current 5 percent.
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