• Kyodo, Bloomberg

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The administration is considering a ¥10.3 trillion tax hike plan over a five-year period to secure funds for reconstruction work following the March 11 earthquake and tsunami, officials said.

It is also eyeing securing extra revenues of around ¥200 billion by selling its holdings in subway operator Tokyo Metro Co. and other government-owned assets, while aiming to ensure around ¥2.4 trillion over four years from fiscal 2012 by scaling down its key policy spending, including monthly child allowances.

Vice Finance Minister Fumihiko Igarashi said Monday the government is weighing selling assets including shares in NTT Corp. and Japan Tobacco Inc. to pay for earthquake reconstruction costs.

“I’ve already ordered officials internally to make their best efforts” to sell government assets, including equity holdings, Igarashi said at a news conference. “I don’t think it would be a big sale though.”

The tax hike proposals were presented at a meeting of economic ministers who discussed how to finance the rebuilding of quake-hit prefectures through government-sponsored projects, which could cost a total of ¥23 trillion, according to a government estimate.

The government wants to incorporate the proposals in the basic guidelines for reconstruction that it is aiming to complete over the coming week.

But the provisional tax hike, which could raise corporate and individual income taxes, is likely to face criticism from within the ruling coalition for increasing the burden on taxpayers instead of additional asset sales or spending cuts.

The tax hike is expected to help the government formulate a huge third extra budget for the current fiscal year by issuing new debt.

Given the deterioration in public finances, some have argued that the government should not issue any new bonds without securing funds to service them through tax hikes or other measures.

On Monday, the Diet enacted the ¥2 trillion second supplementary budget for fiscal 2011 through March, following the first extra budget of ¥4 trillion.

The government did not issue any new debt to compile the two budgets, instead tapping surplus funds from fiscal 2010. Some officials have said the planned third extra budget could amount to more than ¥10 trillion.

The government is setting the next decade for reconstruction and planning and is aiming to spend more than 80 percent, or ¥19 trillion, of the ¥23 trillion in total expenditures during the first half of that period.

Excluding ¥6 trillion spent under the first and second extra budgets as well as several trillion yen raised from cuts in policy spending, the government will have to find another ¥10.5 trillion by issuing “reconstruction bonds,” which will be managed separately from existing conventional government bonds.

The government will service the reconstruction bonds with the potential tax increase and asset sales, and try to prevent any sudden rise in long-term interest rates, a sign that markets are judging the country’s fiscal restoration efforts as insufficient.

Some lawmakers have argued that the Bank of Japan should underwrite such emergency bonds rather than introducing higher taxes. But BOJ Gov. Masaaki Shirakawa showed his reluctance to this again Monday, warning at a seminar that a central bank seen by market participants as monetizing government policy will only do harm to economic and financial stability.

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