The government's conference on reform of social welfare spending and taxes, chaired by Prime Minister Naoto Kan, proposed on June 2 raising the consumption tax rate from the current 5 percent to 10 percent in phases by fiscal 2015 to secure stable funds for maintaining and strengthening social welfare. As part of the tax raise, the government is considering raising the tax rate by two to three percentage points in fiscal 2012 at the earliest. The conference also said that the government's social welfare spending will reach about ¥60 trillion in fiscal 2025. If the amount is to be solely funded by consumption tax revenues, the tax rate must be raised to around 20 percent.
The reform proposal came as Japan is struggling to stabilize the lives of people who have suffered from the devastation caused by the March 11 earthquake and tsunami that hit northeastern Japan as well as of residents of Fukushima Prefecture who have suffered from the spread of radioactive substances from the stricken Fukushima No. 1 nuclear power plant.
Japan also has to reconstruct the areas affected by the disasters. The government must consider a basic concern about the proposed consumption tax raise — whether it is appropriate to raise the tax when the Japanese economy and people are reeling from the damage caused by the March 11 disasters. The proposed tax raise could dampen consumer spending, which accounts for about 60 percent of Japan's gross domestic product, and spending by business enterprises, thus leading to shrinking of economic activities. A final result could be shrinking of the tax base, which would decrease government revenues.