Tax

April 2006

3-Point Consumption Tax Hike May Not Be Enough: Tax Panel Chief
A consumption tax hike of just 3 percentage points is not feasible if Japan's growth rate and aging population are taken into account, the head of the government's Tax Commission said Tuesday. Chairman Hiromitsu Ishi's comments came during a news conference in response to views that lifting the tax by 3 points would be sufficient as part of attempts to reorganize the nation's finances. Reiterating that in the medium to long term, a double-digit consumption tax is unavoidable, Ishi said that "I have no intention of revising" the recommendation in the commission's 2003 midterm report that the current 5% rate "would be raised to two digits in the future." Opinion on how much to raise the tax is split within the government. Internal Affairs Minister Heizo Takenaka argues that the hike should be only 3 points if social security expenses are curbed, but Economic and Fiscal Policy Minister Kaoru Yosano has criticized this stance. (The Nihon Keizai Shimbun, April 12, 2006)

LDP Panel Sees Limited Tax Hikes With 4% Nominal Economic Growth
Tax hikes should be kept at a minimum by realizing nominal economic growth of 4% and through spending cuts, a Liberal Democratic Party fiscal reform study group recommended in its preliminary report Wednesday. According to the report, the government should aim to achieve a primary balance surplus by fiscal 2011. The five years starting in fiscal 2007 are to be designated a period for the country to focus on fiscal reform. In order to improve its fiscal health, Japan must generate higher tax revenue through economic growth and make dedicated efforts to reduce spending, the report emphasizes. This represents a departure from the group's interim report, announced last October, which called for using consumption tax revenue to cover social security expenses. In order to slash spending, the LDP study group hopes to set specific reduction targets for key areas, such as social security and local government finances. It will also call for a continuation of cuts in spending on public works projects. The group envisions revenue increasing by more than 12 trillion yen through the sale of buildings such as public servant housing as well as the effective use of government property. The preliminary report states that government assets are to be reduced by more than 100 trillion yen by securitizing loan claims and other steps. As for monetary policy, the preliminary report calls for discussing the introduction of a framework under which the government and the Bank of Japan can continue to cooperate on ending deflation. It also says that measures such as a numerical target for the inflation rate should be discussed. The LDP study group will start drawing up specific plans for cutting spending next week. It hopes to complete a final report sometime in May for its inclusion in the government's reform policies to be decided in June. (The Nihon Keizai Shimbun, April 06, 2006)