With the economy relatively steady, Japan is ready for debate on tax increases and government program cuts to put the nation’s finances in order, according to Finance Minister Sadakazu Tanigaki.
“I think of myself as the sandbag,” Tanigaki said, indicating his willingness to take hits for politically unpopular moves.
The economic environment is different from 1997, when the government decided to raise the consumption tax to 5 percent from 3 percent, and so shouldered the blame for throwing cold water on the economy, he said.
He said the economy at the time was shackled to structural bad loans, stumbling each time things looked like they were getting better.
“We couldn’t even talk about tax hikes,” he said.
But now, despite the uncertain state of the global economy due to high oil prices, the time is ripe to hold discussions to curb the public debt and seek public support, he said.
“We are forced to issue massive amounts of government bonds, and this will continue for a while,” Tanigaki said. “Keeping the Japanese government bond markets stable will be a huge assignment during my term and that of my successor.”
At the end of June, the government had issued a massive 571 trillion yen worth of JGBs to finance debt.
An aging population makes spending cuts and tax increases essential to sustain fiscal policy, Tanigaki said.
Prime Minister Junichiro Koizumi pledged in 2001 to bring the primary balance into the black at the beginning of the next decade.
A positive primary balance would mean a budget surplus in which tax revenues fully cover expenditures, excluding debt-servicing costs. Maintaining a surplus is a requirement to keep government debt from growing.
Since then, Koizumi has also promised not to increase the consumption tax during his term.
Tanigaki said debate on the consumption tax will come after the government decides whether to reduce or eliminate income tax breaks starting in either fiscal 2005 or fiscal 2006.
But Finance Ministry officials say Koizumi’s two promises are mutually exclusive.
Tanigaki himself equates balancing the nation’s finances with a “complex set of simultaneous equations.”
The ministry will examine public programs to decide whether the central or local governments can run them more efficiently to “make scanty revenues go a long way,” he said.
“People might call me miserly, but if the finance minister doesn’t speak up, who will?”
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