The government may first raise the consumption tax to around 8 percent before implementing a double-digit figure as suggested by a recent tax panel report, the head of the panel said Monday.
“It is possible for the rate to be raised to around 7 percent or 8 percent first, taking into account the view that it would be too harsh to raise it to 10 percent from the current 5 percent in one go,” said Hiromitsu Ishi, chairman of the government’s Tax Commission.
In a report compiled earlier this month, the Tax Commission urged the government to raise the consumption tax rate to a double-digit figure over the next 10 to 15 years to help cope with rising welfare costs related to Japan’s aging population.
Ishi said preparations for the tax increase would have to made over the next seven to eight years. The issue of when the increase will take place is a political decision, he said.
“The economy will not be able to tolerate (a consumption tax hike) for several years yet,” Ishi said. “But I think the government will not be able to achieve its target of securing a primary fiscal balance around 2012 to 2013 without a consumption tax increase.”
The government has said it is aiming to secure a primary fiscal balance — in which revenues equal expenditures minus bond interest payments and bond income — in the early 2010s.
Prime Minister Junichiro Koizumi has repeatedly said he will not raise the consumption tax while he is in office. If he wins re-election this fall, he could remain in the post until 2006.
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