The head of the government’s Tax Commission came under fire Wednesday for saying a day earlier that raising the consumption tax by 3 percentage points as suggested by internal affairs minister Heizo Takenaka is “too small” to get rid of the national debt.
Senior officials of the ruling coalition, the Liberal Democratic Party and New Komeito, fumed at the meeting because Chairman Hiromitsu Ishi’s comments Tuesday could not have come at a worse time: The launch of official campaigning for the April 23 House of Representatives by-election for the Chiba No. 7 constituency.
The officials said the remark could give the Democratic Party of Japan an edge in the by-election.
Hidenao Nakagawa, chairman of the Liberal Democratic Party’s Policy Affairs Research Council, told the meeting he will tell Tanigaki to warn Ishi to watch what he says.
Ishi told a news conference that given the economic growth rate, long-term interest rates, the aging population and the declining birthrate, a tax hike cannot be capped at 3 percentage points.
He said Internal Affairs and Communications Minister Heizo Takenaka’s projection was based on a “short-term view” and that the tax rate needed to be raised to “double digits” in the medium to long term from the current 5 percent.
Last year, Ishi called for the gradual abolition of the income deduction on individual tax returns in the lead up to the Tokyo Metropolitan Assembly elections in July. The opposition camp went on the attack and the ruling coalition frantically denied Ishi’s proposal was the position of the bloc.
Takenaka’s tax projection stems from an assumption that Japan will post a nominal growth rate of 4 percent, with long-term rates moving at a lower level — a scenario he believes will boost tax revenues and curb debt-servicing costs, which would allow for a smaller increase in the consumption tax.
Ishi, however, has a more conservative outlook on economic growth.
While stressing the need for the government to keep cutting spending, Finance Minister Sadakazu Tanigaki has said repeatedly that he wants to raise the consumption tax as early as fiscal 2007 to help restore Japan’s fiscal health by its target of the early 2010s.