From Overseas Press

Drastic tax reform for Japan

(The Yomiuri Shimbun)
Updated: 2010-06-22 10:45

Ahead of the official announcement of the House of Councillors election on Thursday (June 17), the Democratic Party of Japan and Liberal Democratic Party recently hammered out drastic tax reform proposals, including raising the consumption tax rate.

It is the wish of many people to rehabilitate this country's state finances, the worst among leading industrialised nations, and make the social security system sustainable. To this end, a consumption tax hike is obviously unavoidable.

It is the responsibility of politicians to try to convince the public of the need for a tax increase, even if it is painful. We hope to see the matter actively debated during the upcoming upper house election campaign.

At a press conference during which Prime Minister Naoto Kan announced the DPJ's campaign pledges, he referred to the consumption tax and said he would try to come up with an appropriate tax rate and tax reform proposals within the current fiscal year.

As for the consumption tax rate, Kan also said that he would use as reference the main opposition LDP's proposal of raising it to 10 per cent from the current 5 per cent. Kan's comment is a significant change from former prime minister Yukio Hatoyama's policy of making the issue of a consumption tax hike a no-go area.

The consumption tax rate, which was introduced in 1989 at 3 percent, was raised to 5 per cent in 1997. Since then, past administrations have not squarely addressed the consumption tax issue. Kan should be praised for announcing a policy of raising the consumption tax rate this time.

At the press conference, Kan also expressed his intention to seek the people's mandate on the issue in the House of Representatives election before implementing a tax increase. However, an ideal opportunity could be lost if Kan takes things slowly.

Some DPJ members have said that if the DPJ proposes raising the consumption tax rate to 10 per cent as the LDP has done, the issue would not be a point of contention in the upper house election. This is, however, nothing but conventional election posturing.

Kan's policy was met by a backlash within the DPJ. He should speed up intraparty discussions and establish his party's basic policy on the issue.

The nation's debt-laden finances are in a critical situation due to the Hatoyama administration's dole-out policies that stuck to the DPJ's manifesto for the lower house election last summer, in addition to lavish economic stimulus measures after the bursting of the economic bubble.

It is estimated that cumulative long-term debts at the central and local governments will rise to 860 trillion yen as of the end of the current fiscal year - 1.8 times the country's gross domestic product.