EDITORIAL: Consumption tax hike

It is becoming increasingly difficult for Prime Minister Yukio Hatoyama, who pledged to keep the consumption tax rate unchanged at 5 percent for at least four years, to avoid serious debate on this fiscal policy issue.

We hope Hatoyama will frankly acknowledge the need to reconsider his promise and propose a future consumption tax hike as well as ways to use the fresh tax revenue as key issues in the summer Upper House election.

Last year, Hatoyama vowed not to raise the consumption tax, saying it was unnecessary because a sweeping review of government expenditures, including those from special budget accounts, would lead to savings worth several trillion yen.

But no lawmaker in the ruling camp is now making that argument. In fact, a growing number of policymakers are making remarks that indicate a willingness to discuss a tax hike.

Particularly important is what Deputy Prime Minister Naoto Kan, who also serves as finance minister, recently said about a tax increase.

"I have my staff members studying how the right use of fresh money raised by a tax hike could do good for the economy," he said in a speech.

Yoshito Sengoku, minister in charge of national policy, echoed Kan's words at a recent news conference: "We would do the public a disservice if we fail to promise revenue reform in our election campaign."

We applaud these politicians for their courage to tackle head-on the challenge of promoting serious fiscal reform involving a tax hike.

With the Upper House election drawing near, however, there is strong opposition to such moves within the ruling Democratic Party of Japan.

DPJ Secretary-General Ichiro Ozawa told a news conference that it would not make good political sense for the party to withdraw its promise to voters made half a year ago.

But the party would be too irresponsible if it did not try to figure out ways to raise new money to finance the government's spending, which is set to grow further in the coming years due to a package of policy measures the DPJ government has introduced, including a new child allowance program.

It is impossible for the government to continue keeping the tax-increase issue off its agenda.

Tax revenue is falling far short of what is needed to support health-, nursing- and child-care programs and promote efforts to improve the education system.

The government's gargantuan debt is still mostly financed by domestic savings, but it will soon become impossible for the government to depend solely on investors at home for its debt servicing.

The successive administrations of the Liberal Democratic Party-New Komeito coalition kept postponing a tax hike. As excuses for the foot-dragging, the previous governments claimed that spending cuts must come first and that a tax raise would hurt the already enfeebled economy.

The Hatoyama administration has adopted the exact same approach to the issue.

Kan's initiative could lead to a major shift. His argument is based on the view that using money raised by a tax hike in effective ways would expand employment and provide a lift for the economy.

The government, for instance, could spend additional tax receipts on measures to create jobs in areas where demand is expected to grow, such as health and nursing care and environmental protection.

By taking such measures to ease deflationary pressure, the government might be able to raise the tax rate without causing the economy to lose steam. That would also be a first step toward restoring fiscal health.

Parties should make clear their own plans for overhauling the nation's tax system, including income and corporate taxes, and how they would use the newly raised revenue.

A party that fails to make such proposals in its election campaign should be criticized for political irresponsibility.

--The Asahi Shimbun, April 22