The medium-term report released Friday by the government Tax Commission has sent one important message to the public, albeit between the lines: A tax hike is inevitable in the not-so-distant future.
As the report points out, public finances are in critical condition. Nearly 40 percent of the government budget for the current fiscal year depends on bond issues. The gross debt of the central and local governments will reach an estimated 645 trillion yen -- 130 percent of Japan's gross domestic product -- by next March.
The snowballing debt is coinciding with the rapid aging of the population, which is expected to peak in 2007. After that, working-age people will be fewer, and social security costs are certain to rise.
The report suggests the government should cut spending before raising taxes, but given the size of the government debt and the limited effect of any economic growth on tax revenues, a tax hike seems to be in the pipeline.
The report never mentions a tax hike directly; instead it suggests that the burden from the consumption tax should not be passed on to future generations.
One of the Finance Ministry officials who drafted the report said, "All our feelings are loaded in that phrase."
Asked why there is no direct mention of a consumption-tax hike, the panel head Hiroshi Kato said, "We didn't have that in mind. What's important is to make the public willing to accept a tax hike" by improving aspects such as fairness and transparency.
The 383-page report will provide ample material for public debate, as the panel intends. But major political parties are not expected to initiate a tax overhaul until after the Upper House election next summer.