EDITORIAL: Debate on tax reform

Finance Minister Naoto Kan says he intends to start wide-ranging discussions next month on taxation system reform. We hope this marks a serious first step toward overhauling the taxation structure.

On raising the consumption tax rate, Kan, who is also deputy prime minister, reiterated his position that the issue will be discussed, but "only after exhausting all measures to cut wasteful spending."

It makes perfect sense to take the scalpel to budget waste rather than taking the easy way out by raising taxes. But as clearly demonstrated by the government's review last year of government projects, spending cuts alone will not free up sufficient funds to cover the costs for social security, education and other essential programs.

Among industrialized nations, Japan's finances are in the worst shape. The government plans to issue a record 44.3 trillion yen ($493 billion) in government bonds to finance the budget for the new fiscal year. Under initial spending plans, bond issuance will exceed tax revenue for the first time in the postwar era. At the end of fiscal 2010, the combined outstanding long-term debt for the central and local governments is estimated to be 1.8 times as large as the nation's gross domestic product.

A major U.S. credit rating company last month hinted that it may downgrade the rating of Japanese government bonds. Doing so would inevitably undercut confidence in Japan's economy.

The government of Prime Minister Yukio Hatoyama, under a three-party coalition agreement, will maintain the consumption tax rate at the current 5 percent until the next Lower House election. Refusing to even discuss the issue, however, will inevitably trigger cries of irresponsibility. For his part, Hatoyama has declared that the subject is open for debate. But he says he is committed to not raising the tax rate for four years.

The rapid aging of the population, coupled with the nation's low birthrate, means the ranks of workers will decline while the numbers of citizens receiving pensions, medical treatment and nursing care will rise.

The consumption tax, which is less affected by economic trends, offers the most effective means of securing stable revenue sources for the nation's ballooning social security spending.

Continuing to shut off debate on raising the consumption tax rate will likewise impede progress on the work to define a social security system for the future. This would entail a fundamental reform of pension programs. The Hatoyama administration envisions an economic recovery driven by the strong domestic demand. But consumers will not increase their spending if they remain concerned about social security.

The Hatoyama government plans to compile a fiscal management strategy by June that will include measures to keep medium- to long-term budget discipline as well as a midterm financial framework for fiscal 2011-13. We hope to see these concepts fleshed out with details. This would include a road map, the timing and margin for an increase in the consumption tax rate and measures to avoid placing lower-income earners at a disadvantage.

With an Upper House election scheduled for this summer, many in the Democratic Party of Japan and its coalition partners are reluctant to talk about tax increases.

Most members of the public are aware that they will have to accept a heavier tax burden to enhance the social security system.

It is high time for both the ruling and opposition parties to lift the perceived taboo that tax hikes shouldn't be discussed ahead of election campaigns. We urge the main opposition Liberal Democratic Party, which has criticized the DPJ's financial policy, to propose a credible counterproposal before the Upper House election.

After all, isn't it the responsibility of elected lawmakers to unflinchingly appeal to the public for policies they believe in, while outlining the fiscal resources needed to realize those ideas?

--The Asahi Shimbun, Feb. 17