Japanese public supports tax hike after earthquake

Photo: REUTER

The Japanese public agree a tax increase to finance earthquake reconstruction may be unavoidable considering the nation’s huge debt.

KYOKO SHIOMODOI and TORU FUJIOKA

Published: 2011/03/29 06:49:22 AM

A TAX increase to finance earthquake reconstruction may be unavoidable considering the nation’s huge debt, two Japanese ruling party officials say, and two-thirds of the public agree the measure may be necessary.




"We can’t avoid raising taxes as the great earthquake may worsen an already dangerous fiscal situation," Ikkou Nakatsuka, deputy chairman of the tax committee of the ruling Democratic Party of Japan, said last week.


Separately, Vice-Finance Minister Fumihiko Igarashi said yesterday that the government may scrap its plan to lower the corporate tax rate, a move that the head of the country’s largest business lobby said he would support.




A levy increase may help to push back the possibility of a future fiscal crisis, with public debt already about twice the size of the ¥5-trillion ( 61bn) economy.


More than two-thirds of the public — 67,5% — supports higher taxes to fund reconstruction after Japan’s strongest quake on record, according to an opinion poll released yesterday by Kyodo News.




"Tax hikes would certainly be on the table considering Japan’s massive debt burden," Masamichi Adachi, senior economist at JPMorgan Chase , said.




The government estimates rebuilding the northeastern area after the March 11 quake could cost as much as ¥25-trillion . The magnitude-9 temblor and an ensuing tsunami have left more than 27000 people dead or missing.


Mr Nakatsuka has suggested an increase of two percentage points in the sales tax rate, presently at 5%, to secure about ¥5-trillion a year. "We may have the public’s understanding if it’s spent for quake reconstruction," he said.




It would be the first increase in the sales levy since 1997, when it was raised to 5% from 3%. The economy fell into a recession after that increase and the Liberal Democratic Party, in control at the time, lost an election as a result.


Mentioning a possible increase in the tax was one reason Prime Minister Naoto Kan’s party lost control of the upper house in a national ballot last year.








Shinichiro Furumoto, a Democratic Party member and director-general of the party’s fiscal committee, said a sales tax would be the desirable option for raising reconstruction funds. "Only the consumption tax imposes the burden equally among citizens, from young to old and from men to women," he said.




To secure more funds, the government may forgo a planned reduction of five percentage points in the corporate tax rate, Mr Igarashi told reporters yesterday . The levy cut, which was supposed to begin in the year starting April 1, would have decreased tax revenue by between ¥1,4- trillion and ¥2,1-trillion , according to calculations by the finance ministry.




The company tax rate in Tokyo is 40,69%, compared with 28% in the UK and 25% in China, according to the ministry’s data.








The government will need to review its entire budgetary spending and revenue plans in examining how to fund reconstruction of the areas devastated by this month’s earthquake, Katsuya Okada of the Democratic Party said yesterday .








Some other legislators in both the ruling and opposition parties are against tax increases, saying such steps would damage private demand that is already depressed in the aftermath of this month’s disaster. Bloomberg