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The government has endorsed a medium-term tax reform program designed to secure revenue sources to cover the ballooning costs of social security, which includes pensions plus medical and nursing care services. It mentions raising the consumption tax from fiscal 2011, but equivocates, because the program is a compromise between the Liberal Democratic Party and its junior partner Komeito.

Prime Minister Taro Aso had insisted that the program should clearly state that the consumption tax should be raised in three years. But Komeito opposed referring to the timing of the tax raise, since it was fearful of voters’ reactions. Thus the government’s original plan was revised. The program now says that the consumption tax will be raised in fiscal 2011 provided that the government takes intensive measures that enable the economy to recover within three years.

Mr. Aso wanted to specify fiscal 2011 as the year to raise the consumption tax, since the government has a goal of realizing a primary balance surplus for the fiscal 2011 budget. In addition, the surplus funds in special account budgets to be used to pay for one-half of the “basic” portion of pensions — instead of the current one-third — will last only two years.

Because the consumption tax raise is linked to economic recovery, politicians of the ruling coalition may tell voters during a future election campaign that plans to raise the consumption tax are not definite. In addition, there is no consensus on the degree of economic recovery that would justify the consumption tax raise. To appease voters opposed to the hike, the tax program seems to give ruling politicians elbowroom to make excuses.

The Democratic Party of Japan says if it becomes a governing party, it will concentrate on eradicating wasteful use of tax money to avoid raising the consumption tax. But it says that if raising the consumption tax becomes necessary, it will specify the margin of the raise during a future election campaign and call on voters to judge its merits. The ruling coalition should present a clear explanation concerning the planned consumption tax raise.

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