Kan Says Japan Government Must Ask Voters to Approve Tax Change
Japanese Finance Minister Naoto Kan indicated the government would call elections before making any major changes to the nation’s tax code, including raising the 5 percent consumption tax.
“We need to confirm the will of the people before making any significant changes to the tax system,” Kan told lawmakers in parliament in Tokyo today. He said discussions won’t be limited to “whether to raise or lower” certain levies.
Kan said yesterday the government will start debate on taxes next month, in contrast with remarks made last month, when he said the system will be overhauled only after exhausting cost-cutting measures. Moody’s Investors Service said raising the sales tax won’t be enough to repair the country’s finances without a strategy to spur growth and corporate earnings.
“Japan still hasn’t solved this problem where there’s a negative feedback loop,” Thomas Byrne, senior vice president at Moody’s in Singapore, said today on Bloomberg Television. “The big surge in tax collection that occurred before this global crisis came through corporate taxes, so it’s very important for corporates to remain profitable.”
Kan said on Fuji Television yesterday discussions will include income, corporate and environment taxes in addition to the sales levy. Prime Minister Yukio Hatoyama, whose Democratic Party of Japan took office in September, has pledged not to raise the sales tax for four years.
July Election
With an upper house election scheduled in July, Hatoyama may have difficulty introducing policies that could weigh on an economy that’s recovering from its worst postwar recession free business cards. A report today showed growth accelerated last quarter even as deflation intensified.
Hatoyama’s support fell to 35.7 percent this month from 47.1 percent in January, a Jiji Press survey showed Feb. 12.
Standard & Poor’s last month cut the outlook for Japan’s AA sovereign credit rating, citing the government’s failure to come up with a plan to contain the deficit. Japan’s debt burden is approaching 200 percent of gross domestic product, making it the largest in the industrialized world.
The Finance Ministry forecasts public debt will swell to 973 trillion yen ($10.8 trillion) by March 2011. Tax collections are set to fall below the amount of bonds sold this fiscal year for the first time in 63 years.
Kan also said yesterday the government will “make efforts” to meet the DPJ’s election pledge to double child- care allowances for households in the year starting April 2011. Monthly handouts of 13,000 yen have been budgeted for the year starting April.
Japan’s economy expanded at a 4.6 percent annual rate in the three months ended Dec. 31, the Cabinet Office said today, a figure that policy makers including Kan said reduced the risk the nation will fall back into a recession.
“Risks for a double-dip recession are receding,” Kan told reporters in Tokyo. “We’re starting to see some bright signs emerge from the clouds, but we can’t be complacent.”
Filed under: money by Fred