The governing coalition approved a draft of 2006 economic policy guidelines Monday, recommending an overhaul of the tax system but without mentioning specific tax increases, ruling party lawmakers said.
The move suggests that concrete plans to improve the country’s fiscal balance will be left to Prime Minister Junichiro Koizumi’s successor. Koizumi plans to step down in September when his term as Liberal Democratic Party president expires.
Despite the coalition’s reticence on the tax question, a rise in the consumption tax, currently 5 percent, is widely expected.
The draft guidelines were presented to a meeting of the Council on Economic and Fiscal Policy, a key policy-setting panel chaired by Koizumi. The ruling camp, made up of the LDP and New Komeito, and the government are aiming for Cabinet approval of the guidelines on Friday.
The coalition agreed that the policy blueprint should continue last year’s policy of working to overhaul the tax system, including the consumption tax, in the fiscal year ending next March.
The guidelines suggest the government use revenues from the consumption tax for social security after the tax is raised, calling for the coalition and the government to “study the compatibility between payouts and revenue sources,” the lawmakers said.
Finance Minister Sadakazu Tanigaki has said he thinks the government should ensure that the consumption tax provide a stable source of revenue, and that it should work to win public approval for using that revenue to pay for swelling pension, medical and other social security costs.
The Finance Ministry believes it would be extremely difficult to put the country’s fiscal house in order with spending cuts alone, particularly when the aging population is raising social security costs — the largest chunk of public spending — by 1 trillion yen a year.
But the draft guidelines do not say when or by how much the consumption tax should rise because a growing number of coalition lawmakers oppose raising the tax before the Upper House election next summer.
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