Consumption tax debate must proceed
Fiscal reconstruction and economic recovery are the main themes that Prime Minister Naoto Kan's newly reshuffled Cabinet must address. It should prop up the economy and rehabilitate the nation's fiscal condition, which is the worst among advanced nations.
To that end, the Cabinet must put its back into tackling the consumption tax issue, which the prime minister began to treat cautiously after the Democratic Party of Japan's setback in the House of Councillors election in July.
The battle lines on this issue were drawn in the run-up to last week's DPJ presidential election. While Kan said he would consider drastic tax reforms, including of the consumption tax, his opponent, former DPJ leader Ichiro Ozawa, stressed the government should cut waste before raising taxes.
Increase is inevitable
It is a foregone conclusion that reducing waste, no matter how seriously the government tackles the problem, will not generate much in the way of financial resources.
Also, we cannot say that replacing central government subsidies to local governments with lump-sum grants to them with fewer strings attached, or securitizing state-owned assets, constitutes the kiss of life for an anemic economy.
It is likely that Kan's victory in the DPJ leadership race was due in part to the many DPJ lawmakers, party members and supporters who judged as unreasonable Ozawa's vow to fully implement the promises contained in the party's manifesto without clearly indicating the financial resources to fund them.
It is impermissible for the issue of financial resources to be left on the shelf any longer in this country, which is saddled with massive budget deficits. And it is clear that raising the consumption tax rate is unavoidable to secure funds to cover the nation's ballooning social security costs.
A Yomiuri Shimbun opinion survey conducted during the DPJ presidential election race found that 52 percent of respondents supported Kan's stance toward the consumption tax, greatly surpassing the 38 percent supporting Ozawa, who took a negative view toward a tax hike. The people apparently want thorough debate over the issue.
However, although Kan called for drastic tax reforms during the DPJ presidential election, he has yet to go further into their vital contents.
Start discussing details
Some DPJ members, such as Ozawa, are stubbornly cautious toward the consumption tax issue. Kan should lead intraparty debate in various settings, including a tax panel that the DPJ has resurrected, while again calling on opposition parties to join a wider discussion.
It is also urgent to lower the nation's corporate tax rate, which is relatively high by world standards. To rejuvenate the Japanese economy, it is essential to enhance corporate vitality and improve competitiveness. Lowering the corporate tax rate is indispensable for that.
With the Finance Ministry concerned about a possible decline in tax revenues, the government's Tax Commission is expected to face tough going. Kan should not simply leave matters to the commission but must exercise leadership and achieve the objective of lowering the corporate tax rate as part of tax system revision for fiscal 2011.
Kan's touchstone for the time being is the fiscal 2011 budget compilation. Budget requests hit record highs, but Japan is mired in an extraordinary fiscal situation in which the government is taking in less through taxes than it borrows through bonds. Therefore, the government can no longer afford to continue handout policies.
The government should compile a finely tuned budget in which, for example, such policies as the child-rearing allowance are boldly reviewed while spending that would help underpin the country's economy is increased.
(From The Yomiuri Shimbun, Sept. 19, 2010)