Editorial
Hatoyama urged to explain possible consumption tax hike
Finance Minister Naoto Kan has declared that the government will launch full-scale discussions on fundamental tax system reform in March. The government's Tax Commission he heads will discuss a consumption tax hike and the introduction of an environment tax as well as review income and corporate taxes.
Kan had insisted that priority should be placed on the thorough elimination of the waste of taxpayers' money and that discussions on a consumption tax hike should start in 2011 or later. Therefore, he has decided to bring forward discussions on the issue while maintaining the government's policy of not raising the 5 percent indirect tax levied on virtually all goods and services before the next general election.
It goes without saying that Japan's state budget is in critical condition. Following the issuance of massive volumes of government bonds, a market index indicating the risk of being unable to redeem the bonds has risen to an alarming level. U.S. credit-rating company Standard & Poor's started late last month to consider lowering the rating of Japanese government's bonds. Following the fiscal crisis in Greece, global market attention has been focused on the ability of governments to repay debts.
Under these circumstances, it is natural for the government to discuss fundamental reform of the tax system, including a consumption tax hike. Kan has quoted Prime Minister Yukio Hatoyama as telling him, "Discussions on the issue should be welcomed."
Prior to discussions, the prime minister is required to provide an explanation of its fiscal and tax reform policy. During the campaign for the Aug. 30 general election for the House of Representatives last year, the Democratic Party of Japan (DPJ) claimed that financial resources can be permanently secured for policy measures without any tax hikes by restructuring budget appropriations and eliminating the waste of taxpayers' money. One cannot help but wonder whether discussions on a consumption tax hike are consistent with the DPJ's election campaign pledge and whether the government will change its policy of placing top priority on reviewing government spending.
Questions have also been raised as to whether the government can maintain the consumption tax rate at the current level over the next four years while citing the need to hold discussions on the issue.
If the government changes its policy on the matter, it should provide a clear explanation. An explanation like, "Tax revenue has declined more than expected because of the economic downturn," would be far from convincing to the public.
Attention should also be focused on the framework of reviewing the tax system and who will lead the discussions. Since the government should consider tax system reform along with the social security system as a whole, including pension programs, it goes beyond the Tax Commission's jurisdiction. The government is also required to continue efforts to eliminate the waste of taxpayers' money in parallel with discussions on tax system reform. If the government considers introducing an environment tax, it should have a more comprehensive framework and strategy for that purpose.
Kan, State Minister for National Policy Yoshito Sengoku, State Minister for Government Revitalization Yukio Edano and Health, Labor and Welfare Minister Akira Nagatsuma are expected to play a leading role in tax reform discussions. Can they sufficiently cooperate with each other? If the National Policy Unit is in charge of the reform, how will Kan and Sengoku divide their roles? If any discord emerges between the Cabinet ministers concerned, it will send a negative message to the market. The prime minister's leadership will be tested in discussions on the issue.
The public would be disgusted to see the government fail to coordinate views between Cabinet ministers concerned and leave it to a decision by DPJ Secretary-General Ichiro Ozawa.
(Mainichi Japan) February 16, 2010