Hatoyama must join consumption tax debate
Leading members of Prime Minister Yukio Hatoyama's Cabinet have recently spoken in favor of increasing the consumption tax rate. The Hatoyama administration should not let their remarks simply be gestures to attract voters' attention for the upcoming House of Councillors election in summer; it must lead the way toward full-scale debate aimed at actually increasing the tax.
It was Finance Minister Naoto Kan who first spoke on the issue.
"As long as there are no problems with the way we use the increased revenue from a tax rate increase, the economy will improve," Kan said.
National Policy Minister Yoshito Sengoku made similar comments later.
"It'd be an insult to voters if we went into an election ignoring budget revenue reform," Sengoku stressed.
'Nation will go broke'
There is a subtle difference between Kan and Sengoku's arguments for a tax hike: Kan's top priority is fiscal action to help get this country out of its deflationary spiral, while Sengoku sees fiscal rehabilitation as his key concern.
They share a sense of crisis, however: If the situation is left as it is, the economy will not recover and the nation's finances will starve to death, as it were. It was rather late in the day for Kan and Sengoku to take the bold step of arguing for drastic reform of tax revenues, including reform of the consumption tax system, but it was a natural action for ministers tasked with guarding the economy.
In contrast, Hatoyama simply repeated he would not raise the consumption tax rate for four years while he heads the government during his current term as a member of the House of Representatives. The dominant opinion within Hatoyama's Democratic Party of Japan also is wishy-washy about a tax hike; the party feels the consumption tax rate should not be raised as it was not in the party's manifesto for the lower house election last year.
However, the government cannot get round an increase in the consumption tax rate if it wants to cover social security spending, which is increasing by 1 trillion yen annually, and rehabilitate the nation's finances at the same time.
Much of the public is coming to accept this, as clearly shown by the results of a March opinion poll by The Yomiuri Shimbun. In the survey, 66 percent of respondents said they approved of the government's decision to study the possibility of raising the consumption tax rate, well above the 28 percent who did not approve.
Economic organizations have also proposed a major increase in the consumption tax rate.
Don't evade discussion
Given this country's fiscal situation, it will be very difficult to suppress discussion of consumption tax reform. In the fiscal 2010 budget, tax revenue accounts for only 40 percent of the total expenditures of 92 trillion yen. The situation is truly critical.
The combined public debt of the central and local governments is estimated to be 862 trillion yen at the end of fiscal 2010, or 181 percent of the estimated gross domestic product. This is in stark contrast to other major nations, whose percentages of public debts account for between 60 and 70 percent of their GDPs.
The Hatoyama Cabinet is scheduled to come up with new policies on various economic issues by the end of June, including midterm fiscal targets, pension system reform and details of its new growth strategy. Whether these policies prove trustworthy will depend on whether the government can secure stable revenue sources. It has no hope of doing so without a consumption tax hike.
The government's Tax Commission has begun studying how to reform the consumption tax but has not yet started discussing whether the tax rate should be raised. It has just been waiting for politicians to decide what to do.
Opposition parties have criticized the Hatoyama Cabinet for "taking fiscal policy too lightly." Thus it is inevitable that the consumption tax issue will become a focal issue in the upper house election.
We hope Hatoyama will not look away from the consumption tax issue, but join in the debate openly and boldly.
(From The Yomiuri Shimbun,April 17, 2010)