Tokyo Notes

Want Higher Taxes?

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Tokyo Notes

Want Higher Taxes?

Naoto Kan wants to raise sales tax by 10%. And he’s getting the opposition fired up.

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Far from being a brilliant poll-winning strategy, the promise of raising taxes is typically seen as the kiss of electoral death. But putting up taxes is just what Japan’s two largest political parties are promising to do in next month’s upper house election, which is to be formally announced Thursday.

Prime Minister Naoto Kan, who only took over the premiership earlier this month, has boldly set out to take the fiscal bull by the horns by referring to the need to consider a ten percent rise in the nation’s consumption tax. While that would still leave Japan’s sales tax significantly lower than in other major nations (at only half the level of Britain’s revised rate for example), it would mean a doubling from its current level—the effect of which could be a huge shock to the Japanese economy.

But with Japan’s towering national debt standing at 180 percent of GDP—far in excess of Greece’s or Spain’s—there’s no doubt that something must be done about it at some stage. Kan presumably believes that unlike in the past, the Japanese public, spooked by what has happened in Greece and throughout Europe, will on this occasion understand the need for Japan to sort out its finances.

Kan’s adoption of this line of thought is all extremely vexing for his counterpart at the Liberal Democratic Party, Japan’s long-running stalwart of establishment power. Kan’s suggestion that nonpartisan debate should take place about raising the tax has infuriated LDP leader Sadakazu Tanigaki, who had hoped to play the fiscally responsible party card himself in this election. In refusing to consider such a nonpartisan approach, Tanigaki now ends up looking churlish.

Not only that, the sales tax figure of ten percent is the very number originally put forward by the LDP. Kan has said this LDP figure will be used as a frame of reference if the DPJ has to come up with a consumption tax plan by itself. In using the LDP figure, Kan has stolen Tanigaki’s thunder, leaving him little choice but to fall back on the negative focus of his lackluster leadership of the main opposition party.

But as large sections of the mainstream media here have pointed out, Kan’s plans to raise the sales tax and achieve a primary balance surplus by 2010 are sketchy to say the least. How will any extra money from the increased consumption tax be used? How will other taxes be changed? How will the regressive nature of the sales tax be mitigated? And when exactly will the tax hike take place?

Then there’s the impression that the DPJ leader has announced this great plan before he’s found a solid consensus in his own party on the matter. Sound familiar?

The Asahi Shimbun noted Thursday that in a pre-campaign debate among the leaders of Japan’s nine main parties, Kan had already tried to weaken his stance on raising the tax, pointing out that public support for Kan’s administration had already fallen from 59 percent to 50 percent following Kan’s first reference to a hike to 10 percent.

All the same, with the election slated for July 11, there can be no going back now. The tax taboo has been well and truly broken and this is going to be the central issue of the upcoming election.