Business

Consumption tax hike 'not linked to growth'

Kyodo

The consumption tax could be raised even if the economy is contracting, the head of the Democratic Party of Japan’s tax panel suggested Wednesday.

The comment by Hirohisa Fujii, a former finance minister, may trigger criticism from within the ruling party and throw a wrench in Prime Minister Yoshihiko Noda’s effort to increase the voter-sensitive levy to help pay for swelling social security costs.

“We should not (raise the tax) when there’s an economic bubble” as that normally increases inflation, Fujii, a veteran lawmaker, said in a speech. “But the negative impact on the economy (from a tax hike) would be somewhat limited during a period of slow or negative growth.”

His remarks came amid discussions within the DPJ on how to clarify the administration’s take on what would cause it to shelve the tax hike.

Some party members, who fear a higher consumption tax would hurt consumer and business sentiment, have called for criteria with specific numbers indicating the desirable inflation or growth rate under which the administration should go through with the plan.

However, Fujii flatly disagreed that there is a need for numerical goals.

The Noda administration wants to raise the consumption tax to 8 percent in April 2014 and then to 10 percent in October 2015 as part of welfare and tax reforms, and is expected to submit the related bill to the Diet later this month.

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