Prime Minister Naoto Kan has said that fiscal consolidation is his most crucial task, championing a tax hike to rebuild state finances and possibly spur economic growth, but he had no such idea several months ago.
Behind the sudden shift in viewpoint is Yoshiyasu Ono, an economics professor at Osaka University. Ono has been advising the Cabinet Office on economic policy since late February, a month after Kan took over the finance minister’s portfolio.
The expert in macroeconomics is a proponent of raising taxes and spending the money to boost jobs to help the economy complete its recovery from recession and grow further — which is what Kan has been advocating for the past several months.
In a recent interview, Ono said the government should increase taxes and use the revenue to create jobs in such high-potential sectors as nursing care, health care and environmental technology as the population grays, which would then help compensate for the drop in household income expected from the tax hike.
An improvement in labor conditions would help contain deflationary pressure, allay public concerns about unemployment, increase consumer spending and, consequently, tax revenues, which could then be used to reduce the state debt, he said.
Ono, 59, is regarded as one of Kan’s mentors in economic and fiscal policy — an area not known to be Kan’s forte. He also said the structural reforms carried out under former Prime Minister Junichiro Koizumi have been proven “wrong.”
Koizumi’s reforms were intended to boost corporate efficiency but ended up increasing unemployment, worsening deflation and reducing already sluggish demand instead, Ono said.
Ono, who is director of the university’s Institute of Social and Economic Research, also proposed levying an environment tax and returning the funds to the public in the form of subsidies for purchasing energy-efficient products, a scheme similar to the Eco-point program.
He suggested the Eco-point scheme be extended to encourage companies to commit themselves more strongly to manufacturing energy-efficient items.
Before becoming finance minister, Kan, 63, was cautious about hiking the 5 percent sales tax because it might brake efforts to reduce administrative waste.
Recently, however, he has been leaning more toward fiscal responsibility and tax increases in light of the debt crisis in the euro zone, after attending Group of Seven meetings and other events.
To highlight his determination to rebuild the nation’s finances, the prime minister devoted most of his opening remarks at his inaugural press conference Tuesday to economic and fiscal policy.
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