The ruling Democratic Party of Japan and the No. 1 opposition Liberal Democratic Party have announced their manifestos for the July 11 Upper House election. Noteworthy is the DPJ's mention of the possibility of raising the consumption tax as a way to rebuild state finances.

After Mr. Ichiro Ozawa became DPJ head in 2006, the party avoided discussing the consumption tax. Even after Mr. Yukio Hatoyama became party chief, the DPJ's manifesto for the Aug. 30 Lower House election did not mention the issue.

Now the DPJ says it will start discussions with other parties on drastic reform of the tax system, which will include a possible raise of the consumption tax. This is a departure from the days of the Hatoyama administration, which used to say that it and the DPJ would not discuss the consumption tax issue during the current four-year term of the Lower House.

As the population grays, social welfare spending is expected to increase more than ¥1 trillion a year. Raising the consumption tax is believed to be the easiest way to cope with the situation. A one-percentage-point increase in the tax rate is expected to bring in additional revenue of ¥2 trillion to ¥2.5 trillion.

To reduce reliance on bond issuance, the DPJ says that revenue sources for new policy measures must come, in principle, from a reduction in the budget for existing policy measures or from an increase in revenues. The DPJ says that bond issuance for fiscal 2011 will not exceed that in fiscal 2010. The party also promises to strive to halve the primary balance budget deficit by fiscal 2015 from the fiscal 2010 level and to erase the primary balance deficit by fiscal 2020. The primary balance is the difference between revenues (excluding borrowings) and spending (excluding debt service costs).

The LDP is more specific about the consumption tax. It calls for raising the tax from the current 5 percent to 10 percent in the near future. To reduce the burden on low-income people, it proposes using a lower rate for foods.

Prime Minister Naoto Kan said that by the end of fiscal 2010, his government will write a proposal to reform the consumption tax, which will mention a future rate and include measures to lighten the burden on low-income people. He also said he will use a 10 percent rate as a reference in considering the issue, but that it is difficult at the moment to say when the raise will happen.

It now seems as if the DPJ and the LDP were competing in a race to raise the consumption tax. Both parties must pay serious attention to the possibility that raising the consumption tax could slow down the economy, thus leading to a decrease in the overall tax revenues. It is welcome sign that both parties are considering ways to reduce the impact of a consumption tax raise on low-income people. The parties should not forget the need to increase the progressiveness of the income tax as a means of distributing income more fairly.

Concentrating attention on raising the consumption tax risks distracting politicians from efforts to reduce government waste. The Kan administration must realize that the Government Revitalization Unit's scrutiny of budget requests of government ministries and agencies and the projects of nonprofit public service corporate bodies receiving public money has not yet been completed. The government must examine whether the unit's recommendations are faithfully implemented and whether the unit has covered enough problem areas. The government must make serious efforts to cut government waste by strictly examining special account budgets hidden from the public's attention. Without reduction or abolition of these budgets, it will be impossible to fully erase government waste.

To help economic growth, the DPJ calls for a review of the corporate tax, while the LDP advocates cutting the effective corporate tax rate from around 40 percent currently to 20 percent. Both parties must show convincing evidence that a corporate tax cut will increase Japan's competitiveness and employment.

The DPJ's new manifesto has dropped the phrase "from concrete to humans," the catchphrase of the Hatoyama administration. Its references to the idea of lawmakers taking the initiative in policy development are scant. The party also gave up its earlier promise of doubling the monthly child allowance from the current ¥13,000 to ¥26,000.

It now says that additional funds will be used for such purposes as improving day-care services for children, reducing medical cost burdens for children, making school lunches free and covering the costs of vaccination. Given the financial constraints, this is a rational approach.

The DPJ must make clear that it will make the child allowance a permanent program as an expression of the philosophy that all of society should help support child-rearing families. Since the child allowance will not increase, it also must fully discuss what to do about the special spouse tax deduction, the abolition of which will mean a cut in income for many households.